Tag Archives: nyse

Direxion Shares Exchange Traded Fund Trust Up 300% This Year As Gold Soars

The Direxion Daily Gold Miners Index Bull 3x Shares ETF (NYSEARCA: NUGT ) as on a high-powered flight on Thursday as it shot to an intraday trading high of $101.29. The ETF later settled with gains of 13.25% at $99.90 – by then, the market had already made its point, gold is on the rise and there’s not much you can do to stop its ascent. The yellow metal has been on a bullish ascent since Monday and Thursday marks the fourth straight session of gains. The reasons behind the rally in the bullion markets are not farfetched. High on the bullish factors supporting a rally in the yellow metal is the fact that the U.S. Federal Reserve did not raise interest rates in April and the first rate hike might not happen until June. The second reason for the rally was the fact that the Bank of Japan has surprised the global market by keeping its interest rate unchanged in sharp contrast to expectations that BOJ would retreat deeper into negative territory. Gold climbs for fourth straight session The decision of the fed to keep interest rates unchanged, its cautious stance, and the refusal of the BOJ to weaken the Yen has forced the U.S. dollar to fall lower. A weak dollar often boosts the prospects of gold and the yellow metal is milking all the gains in the greenback for what it is worth. On Thursday, spot gold climbed 1.6% to settle at $1,266.50 an ounce and gold for June delivery gained 1.6% to close at $1.266.50 an ounce. In the year-to-date period, the yellow metal has gained 17.14% to erase the losses that it recorded in 2015. NUGT has gained a massive 310.6% in the year-to-date. The rally in gold slowed down at the start of the second quarter – in the last one month, the yellow metal has gained 1.70% and Thursday’s gains records the highest closing price in the bullion since March 10. It is worthy of note that analysts seem to think that gold had reached a bottom last year and that the rally will continue for much of this year. For instance, George Milling-Stanley, strategist at State Street Global Advisors notes that “in the continued absence of any surprises from policy makers, the gold price could still see further gains in 2016… A price of around $1,350 by year-end could be sustainable.” Nonetheless, I wouldn’t be surprised if the yellow metal runs into occasional volatility that pull the price down. Crude oil also benefits from weaker dollar The weaker dollar has lifted gold and NUGT – but it is also lifting crude oil in global trade. Yesterday, crude oil had more reasons to climb partly because the prospects of a production freeze by OPEC and Russia looks brighter and partly because the BOJs economic policy has weakened the dollar. U.S. West Texas Intermediate (WTI) Futures gained 1.5% to settle at $46.03 and Brent crude gained $0.93 to $48.11 per barrel nearing its highest point since November last year. Dominick Chirichella, a senior partner at the Energy Management Institute observes “the perception view crowd are starting to call the oil market rally the beginning of what will be a long bull market… Clearly, the market is primarily focused on the forward supply-and-demand picture while continuing to push the bearish nearby fundamentals further into the background.” Link to the original post on Learn Bonds

National Fuel Gas Company’s (NFG) CEO Ron Tanski on Q2 2016 Results – Earnings Call Transcript

National Fuel Gas Company (NYSE: NFG ) Q2 2016 Results Earnings Conference Call April 29, 2016 11:00 AM ET Executives Brian Welsch – Director of Investor Relations Ron Tanski – President and Chief Executive Officer Dave Bauer – Treasurer and Principal Financial Officer John McGinnis – Chief Operating Officer Analysts Kevin Smith – Raymond James Holly Stewart – Scotia Howard Becca Followill – U.S. Capital Advisors Operator Good day, ladies and gentlemen and welcome to the National Fuel Gas Company second-quarter 2016 earnings conference call. [Operator Instructions] I would now like to introduce your host for today’s conference, Mr. Brian Welsch, Director of Investor Relations. Please go ahead, sir. Brian Welsch Thank you, Christie and good morning. We appreciate you joining us on today’s conference call for a discussion of last evening’s earnings release. With us on the call from National Fuel Gas Company are Ron Tanski, President and Chief Executive Officer, Dave Bauer, Treasurer and Principal Financial Officer, and John McGinnis, Chief Operating Officer of Seneca Resources Corporation. At the end of the prepared remarks, we will open the discussion to questions. The second-quarter fiscal 2016 earnings release and April investor presentation have been posted on our investor relations website. We may refer to these materials during today’s call. We would also like to remind you that today’s teleconference will contain forward-looking statements. While National Fuel’s expectations, beliefs and projections are made in good faith, and are believed to have a reasonable basis, actual results may differ materially. These statements speak only as of the date on which they are made and you may refer to last evening’s earnings release for a listing of certain specific risk factors. With that I will turn it over to Ron Tanski. Ron Tanski Thanks, Brian and good morning everyone. Thanks for joining us for today’s call. As you saw in our earnings release last evening, we had a pretty steady second quarter although earnings were slightly down from last year. Earnings in our utility segment were lower due to warmer than normal weather and the lower commodity prices decreased earnings in our Exploration and Production segment. Dave Bauer will go into the details of the major earnings drivers later in the call. Overall, activities in the field for each of our operating segments moved right along as planned. We are just gearing up for the construction season for our regular pipeline renewal projects in our utility and our Pipeline and Storage segments. At the same time, we’ve slowed the drilling activities at Seneca Resources by moving to a single rig drilling program. Our reduced drilling level combined with getting a partner to fund a large portion of this year’s drilling program has cut our spending to allow us to leave within cash flow for the year. Our current plans allow us to stay to single drilling rig for at least a year before we need to ramp up drilling and completion activities again in order to have enough production to fill the pipeline capacity that will come online in November of 2017, the targeted completion date of our Northern Access pipeline. With respect to our Northern Access project, we received some good news from the Federal Energy Regulatory Commission. At April 14th, FERC issued its notices schedule for environmental review for the project and it confirmed their intention to develop an environmental assessment or EA for the project and announced the July 27, 2016 target date for the EA. Now that fits within our timeline for November 2017 in-service date. The other recent news on the regulatory front is the denial by the New York DEC of the Federal Water Quality Certification for the Constitution Pipeline project in Southeastern New York. We submitted our own permit filings to the New York DEC, the Pennsylvania Department of Environmental Protection and the U.S. Army Corps of Engineers for our project just last month. We delayed our filing by three months after a number of pre-filing meetings with the staff of the DEC in order to make sure that our application was complete and address their stated concerns. Based on those pre-filing meetings and gleaning what information we can from the Constitution denial letter, we feel our application is in pretty good shape. A big plus for our project is that more than 75% of the pipeline route will be co-located along existing utility corridors. We also believe that we worked well with the DEC in the past. We already owned and operated thousands of miles of pipeline assets in the state and during our ongoing maintenance and renewal of those lines we’ve dealt with them on a regular basis, addressing many project specific issues. Suffice it to say that we are confident that our project will continue to move along. On the federal rate regulatory front, our team has been busy filing the required cost and revenue study for our Empire Pipeline and answering interrogatories from FERC staff regarding the filing. The schedule is set out by the administrative law judge is a target completion date for the proceeding is set for February of 2017. So, we will keep you posted in future calls if anything major happens in that case. Switching to our utility and state rate regulation, our utility rate team filed a request for a rate increase in New York yesterday. This is the first rate increase request the utility has made since early 2007. The filing supports a $41.7 million increase in base rates, an increase of approximately $5.75 per month for an average residential customer. As is typical in the New York rate proceeding, any new rates would not become effective for 11 months. So, we wouldn’t expect any earnings impact until the second half of next fiscal year. We have a pretty clear line of sight through the end of this fiscal year with respect to our earnings projections and you can see that we’ve tightened up our earnings guidance range. With respect to our oil and gas production, we are well hedged for the remainder of this fiscal year and next fiscal year. And as you can see in the back pages of our earnings release, we are continuing our normal practice of layering in hedges for our oil and gas production as commodity prices in the futures market for our fiscal 2018 and beyond have begun to firm up. We see the market getting more bullish on commodity prices in the out years as production volumes have started to level off and the rig count stays low. For the foreseeable future, we will continue to watch our spending, protect our balance sheet and work to get our Northern Access pipeline build that will deliver Seneca’s production to an attractive pricing point. Now, I will turn the call over to John McGinnis, who will be stepping into the role of President at Seneca, when Matt Cabell’s retirement becomes effective next week. John McGinnis Thanks, Ron, and good morning everyone. For the fiscal second quarter, Seneca produced 39.2 Bcfe, which suggest over a Bcf more than we produced in our first quarter. In Pennsylvania, we curtailed approximately 9.1 Bcf of potential spot sales due to low prices and as a result, no spot gas was sold during the first half of our fiscal year. In April, however, prices have actually improved to the point but we have intermittently produced into the spot market at both our Tennessee and Transco receipt points. Though not a large volume totaling just over a Bcf, this was the first time we have sold meaningful spot volumes since December of 2014. In Pennsylvania after beginning the year with three rigs, we have now dropped to a single rig as of March. We plan on keeping this rig active for the remainder of the year to ensure we have sufficient inventory of DUCs to help fill Northern Access now scheduled to be online late next year. We have also reduced the activity level related to our completions crew to daylight-only operations. At this reduced pace, we typically complete five to six stages per day, which allows us to continue to recycle all of our produced water and avoid costly water disposal. Even with our frac crew operating at half pace, we continued to drop our well costs. For the first half of 2016, our development program has averaged under $5 million per well for a 7,400 foot lateral, which equates to costs of around $675 per foot. The key drivers for this continued drop in costs include the impact of the new frac contract executed in September of 2015 and a significant reduction in water costs. We now average less than a dollar per barrel in water costs, compared to about $3 per pad early in our development program. Moving now to the Utica/Point Pleasant, we have drilled and completed our first Clermont area at Utica horizontal at an estimated cost of just over $7 million. This well was drilled with a relatively short lateral length of 4,500 feet to better understand productivity on a per foot basis. Once we have completed all of 11 wells on this pad, 10 of which are in the Marcellus, we will bring this pad into production later this summer. The rig has recently moved to a new pad also in the Clermont area where we are currently drilling our second Utica well. This well is scheduled to be tested early in 2017. On the marketing front, when the opportunity arises, we continue to layer in fixed price sales and firm sales tied to financial hedges. This has allowed us to slowly grow production and realize acceptable pricing during an exceedingly difficult period for commodity prices. For the remainder of our fiscal 2016, the vast majority of our natural gas production forecast around 64 Bcf is locked in both physically and financially at an average realized price of $3.20. This $3.20 is net of firm transportation. We also have an additional 4 Bcf of basis protection and with the recent improvement in futures pricing, we are actively pursuing additional opportunities to add to our physical sales portfolio and hedge book. In California, production was nearly flat quarter-over-quarter, even though we have significantly cut our spending in California this year. We’re targeting to spend just under $40 million in 2016, almost a 30% reduction in compared to last year and half of what we spent just two years ago. All of our development activity is focused in Midway Sunset and will remain so until prices rebound. As a result of our recent farm-ins, however, we believe we can keep production flat to slightly growing over the next couple of years, even with these capital cuts. Thus far in 2016, we have cut E&P capital expenditures by almost 70% compared to 2015 levels to a forecasted range of $150 million to $200 million. Even with these cuts, we expect to grow our production slightly this year and maintain our DUC count ahead of Northern Access in-service date. The key drivers in achieving this result include our recent joint development agreement with IOG, dropping to a single rig and moving to daylight-only frac operations in Appalachia, combined with again, a significant reduction in our California capital expenditures. I’d like to now turn the call over to Dave Bauer. Dave Bauer Thanks, John. Good morning, everyone. Excluding the ceiling test charge, earnings for the quarter were $0.97 per share, down $0.05 from last year. The unseasonably warm weather in our service territory relative to last year’s record cold, lowered earnings by a combined $0.11 in our utility and Pipeline and Storage businesses. Meanwhile, our ongoing focus on cost control across the system helped to offset the continued weakness in oil and gas prices, which lowered earnings by about $0.25 per share. All told, considering the twin headwinds of weather and commodity pricing, both of which are largely beyond our control, the second quarter was a good one for National Fuel. Seneca’s production was up nearly 10% over last year’s quarter and 3% on a sequential basis. This increase is largely attributable to Seneca’s firm transportation capacity and associated firm sales related to the Northern Access 2015 project, which was placed in service late in calendar 2015. As a reminder, this was a joint project between our NFG Supply Corporation subsidiary and Tennessee Gas Pipeline designed to move a 140,000 dekatherms per day from our WDA acreage to the Canadian border at Niagara. For the quarter, this project contributed over $3 million in revenues to our Pipeline and Storage segment. In addition to benefiting Seneca and Supply Corp, the increase in Seneca’s production combined with our partner IOG’s share of the volumes from the joint development wells also helped our gathering business where revenues were up by $4.2 million or nearly 25%. Controlling operating costs was a focus across the system and we saw excellent results during the quarter. At Seneca, per unit LOE was $0.96 per Mcfe, down $0.07 from the first quarter. Most of this decrease was attributable to our California operations. In light of lower oil prices, our team has kept a tight lid on expenses, limiting our spending to only highly economic work-over activity and to areas that are critical to the safety and integrity of our assets. Also, lower natural gas prices caused steam fuel cost to be lower than we expected. In Appalachia, lower water disposal costs were also a factor. As John said, Seneca is now reusing almost 100% of our produced water. Road maintenance expense was also lower due to the relatively mild winter. Given all of these factors, we now expect our full-year per unit LOE rate will be in the range of $0.95 to a $1.05 per Mcfe, down $0.05 from our previous guidance. Seneca’s per unit G&A expense was $0.49 per Mcfe. During the quarter, Seneca implemented a reduction in force that trimmed our staffing complement by about 10%. As part of that effort, we paid out severance costs of about $1.5 million, which caused Seneca’s per unit G&A to be about $0.04 higher than it otherwise would’ve been. We’ll start to see lower personnel costs in the second half of the year. Per unit G&A for the rest of the fiscal year should be in the range of $0.35 to $0.40 per Mcfe. At utility, O&M costs were down over $5 million from last year. About a third of this decrease was caused by lower bad debt expense. A combination of historically warm weather and exceptionally low natural gas prices caused our customers winter heating bills to be the lowest they’ve seen in decades and has had a meaningful impact on our bad debt expense. The remainder of the decrease was caused by a variety of factors, including lower maintenance expense that was the result of the mild winter and lower pension and personnel-related expenses. In the Pipeline and Storage segment, revenues were up just about a $1 million from last year. While this may seem light, given the projects that were placed in service in the first quarter of the fiscal year, the swinging weather year-over-year had a significant impact on revenues from short-term firm services which decreased by approximately $5 million from last year. We expect larger favorable variances in revenue for the last two quarters of the year and still expect revenues in the segment to total between $300 million and $310 million for the full year. Looking to the remainder of the year, we are tightening our earnings and production guidance ranges. Our new earnings guidance while unchanged at the midpoint is a little tighter at $2.80 to $2.95, excluding ceiling test charges. Seneca’s updated production forecast is now a 158 to a 175 Bcfe. We up the low end of our previous guidance range of 150 to a 180 Bcfe to reflect new firm sales that were done this quarter, as well as some minor changes in our operations schedule. We lower the high end to reflect curtailments from the second quarter. As in prior quarters, the difference between the high and low end of our production range is driven entirely by curtailments. The low-end assumes we curtail a 100% percent of our spot production while the high-end assumes we have no curtailments. While we didn’t have any spot sales during the first six months of the year, as John mentioned we’ve sold about a Bcf spot sales in April which is encouraging. We have also made a modest change to our NYMEX natural gas price assumption which is now $2.15, down $0.10 from our previous guidance. Our oil price assumption is unchanged at $40 a barrel. We are well hedged for fiscal ‘16 for the remainder of the fiscal year and assuming the midpoint of our production guidance, we are about 80% hedged for natural gas and 55% for crude oil. Therefore, any changes in commodity prices should have a relatively modest impact on our cash flows. We continue to actively pursue incremental hedges in firm sales to lock in the economics of our program, as we grow into the volumes that are required to fill the Northern Access and Atlantic Sunrise projects. Just recently, we added a modest layer of Dawn and NYMEX-based hedges for 2018 to 2021 time period at about $3 per MMbtu. Consolidated capital spending for fiscal ‘16 is expected to be in the range of $445 million to $545 million, down $20 million from our previous range. Substantially, all of the change is related to the timing of spending between 2016 and 2017. Details of capital spending plans by segment are included in the new IR deck on our website. From a liquidity standpoint, we continued to be in great shape. Assuming the midpoint of our earnings and capital spending guidance, we expect we are very close within cash flows for the fiscal year. With that I will close and ask the operator to open the line for questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] Our first question comes from the line of Kevin Smith of Raymond James. Your line is open. Kevin Smith Thank you and good morning, gentlemen. John McGinnis Hi, Kevin. Kevin Smith John, congrats first on joining the earnings call but with that, I will kick off the question. Can you discuss current shut-in volumes in the Marcellus and maybe how much you’ve been able to sell to spot since differentials have been tightening? John McGinnis Say that again. I’m sorry, you are breaking up. Kevin Smith I apologize about that. Can you discuss current shut-in volumes in the Marcellus and then maybe how much you’ve been able to sell into spot and what that’s looked like over the last month? John McGinnis Yes. We’ve sold essentially nothing in spot for the second quarter, a little over a Bcf in April because prices had improved upon we could, both on Tennessee and Transco sell into the spot market. But recently though pricing has dropped off again so we are shut-in. But I think we are about $40 million to $50 million of available spot in our Tioga area and a little over 100, 120 in Lycoming if I remember correctly. Kevin Smith Got you. That’s helpful. And would you mind providing some more details about the new firm sales agreements? Basically what’s the length of those contracts? Dave Bauer Yes. Sure, Kevin. This is Dave. We did — well for fiscal ’16, we did about 5 Bcf of additional firm sales and then looking out into ’17, ’18, ’19, we did a bunch of fixed sales ranging, call it from 10 to 30 Bcf per year, kind of in the high but just under $2 range. Kevin Smith Okay. Great. That’s extremely helpful. That’s all I had. Thanks. Dave Bauer Sure. Operator Thank you. [Operator Instructions] And we do have a question from the line of Holly Stewart of Scotia Howard. Your line is open. Holly Stewart Good morning, gentlemen. John McGinnis Hi, Holly. Holly Stewart Maybe just one on sort of what you see on the capacity market in Northeast PA. I mean the rig count, I think in Northeast PA has dropped to maybe three now. Just curious if you’ve seen a pickup in capacity being offered out there and sort of what you are looking at in terms of volume, maybe a pickup in order to bring some of that volume on — some of your shut-in volume online? John McGinnis I think it’s actually down to two rigs now. I was just looking at that the other day. It continues to fall. We haven’t seen any help on the capacity side as of yet. Whether producers are bringing on wells as they had shut in, we just — we haven’t seen additional, at least significant additional capacity available in that part of the state. Holly Stewart Okay. Okay. Great. And then maybe you could just help us think about the progression of production for the next few quarters, give us your wells turned to sales during this past quarter and then sort of the remaining target for the year? John McGinnis Yes. I can give you our target for the year. I can’t tell you what the second quarter was. We are targeting for fiscal ‘16 about 50 wells to drilled, 45 to be completed. We will end the year with about 60 to 65 DUCs. And in terms of the well count, back half of the fiscal year, we are looking at bringing on an additional about 25 wells. Holly Stewart Okay. Great. Thanks, John. John McGinnis Yes. Operator Thank you. And our next question is from Becca Followill of U.S. Capital Advisors. Your line is open. Becca Followill Hi guys. John McGinnis Hi Becca. Becca Followill You talked a little bit. I know you’ve had the one-rig program. What does it take to start to ramp that back up again? John McGinnis Well, part of why we want to keep a single rig going is that it keeps in the half, sort of the daylight-only or what I call a half frac crew is that it keep our DUC count relatively flat. And so really to ramp-up, it doesn’t really — we are not going to necessarily need to bring in an extra rig. What we will end up doing is we will go to 24-hour frac crew and potentially two frac crews, obviously — depending on the ops and the in-service date related to Northern Access. So really it’s more to bring in an additional frac crews as opposed to a rig count. Becca Followill Thank you. And then on the water permit, what is the timing you’re expecting to get that permit from the DEC? John McGinnis Well, assuming that it takes the full year, Becca, it would be the beginning of March of 2017. Are you getting that? Becca Followill Do you think it will take the full year? John McGinnis I think we’ve — that’s kind of what we have planned at the outside. We had the luxury of being on 98% of the route sites, so that we had what we think was a very, very complete application. Whether that state will move it along any faster, we can’t guarantee. We just know that there is a year timeframe from filing. So that’s what we are planning on. Becca Followill Thank you. And then lastly on the Empire open season. I think there was something in the slide deck about precedent agreements were tendered in February. So, can you talk a little bit about that expansion? John McGinnis Well, we are working through that. We did have a good open season for the Empire North project. It was — to a certain degree it was oversubscribed because certain parties tried to put together different combinations of transportation routes and so that’s really what we’re working through, Becca, in order to kind of rationalize the best flows and the best combination and get that worked in to precedent agreements. We don’t have any of them signed just yet and we just continue to work away at that. Becca Followill Okay. Thank you. Operator Thank you. And our next question is from Chris Sighinolfi of Jefferies. Your line is open. Unidentified Analyst Hey guys. Good morning. This is actually Chris Dillon [ph] on for Sighinolfi. How are you? John McGinnis Hi, Chris. Dave Bauer Good, Chris. Unidentified Analyst I was just wondering if you could provide an update on the JV and whether or not you feel like the partner is likely to exercise the option there as we approach that date and what I guess, kind of conversations you are having and what might be under consideration from their side? John McGinnis The relationship is great. We drilled 30 of the 42 wells. With those pads just — they are early. They are just now coming online. Our costs have been about 10% or more down which they are pleased with. We have conversations around entering into the second tranche, but really that’s a decision that they are going to make in July and that’s really all I can speak to right now on that. Unidentified Analyst Okay. That’s fair. That was it for me. Thanks guys. Operator Thank you. And that does conclude our Q&A session for today. I would like to turn the call back to Mr. Brian Welsch for any further remarks. Brian Welsch Thank you, Christie. We would like to thank everyone for taking the time to be with us today. A replay of this call will be available at approximately 3 p.m. Eastern Time on both our website and by telephone and will run through the close of business on Friday, May 6, 2016. To access the replay online, please visit our investor relations website at investor.nationalfuelgas.com. And to access by telephone call 1-855-859-2056 and enter the conference ID number 84814628. This concludes our conference call for today. Thank you and goodbye. Operator Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

The Southern (SO) Thomas A. Fanning on Q1 2016 Results – Earnings Call Transcript

The Southern Co. (NYSE: SO ) Q1 2016 Earnings Call April 27, 2016 1:00 pm ET Executives Aaron Abramovitz – Director – Investor Relations Thomas A. Fanning – Chairman, President & Chief Executive Officer Arthur P. Beattie – Chief Financial Officer & Executive Vice President Analysts Greg Gordon – Evercore ISI Julien Dumoulin-Smith – UBS Securities LLC James von Riesemann – Mizuho Securities USA, Inc. Ali Agha – SunTrust Robinson Humphrey, Inc. Paul T. Ridzon – KeyBanc Capital Markets, Inc. Mark Barnett – Morningstar Research Paul Patterson – Glenrock Associates LLC Daniel F. Jenkins – State of Wisconsin Investment Board Operator Good afternoon. My name is Benjamin, and I will be your conference operator today. At this time, I would like to welcome everyone to Southern Co.’s First Quarter 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to turn the call over to Mr. Aaron Abramovitz, Director of Investor Relations. Please go ahead, sir. Aaron Abramovitz – Director – Investor Relations Thank you, Benjamin. Welcome to Southern Co.’s First Quarter 2016 Earnings Call. Joining me this afternoon are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Co.; 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. The slides we will discuss during today’s call may be viewed on our Investor Relations website at investors.southerncompany.com. At this time, I will turn the call over to Tom Fanning. Thomas A. Fanning – Chairman, President & Chief Executive Officer Good afternoon, and thank you for joining us. We appreciate your interest in Southern Company. We had another good quarter to begin 2016, a great start to the year, and we are making excellent progress on many fronts. Art will provide an overview of our financial results in just a minute. But first, I’d like to provide you with a brief update of our regulatory calendar in Georgia, and updates on the Vogtle and Kemper projects. As many of you are aware, 2016 is a busy year for regulatory filings in Georgia; an IRP filing, two VCM filings, a merger approval application, a potential rate increase and the Vogtle contractor settlement filing, which has been extended by the Georgia Public Service Commission to review all costs of the project incurred to-date. To summarize, first, Georgia Power filed its triennial integrated resource plan, or IRP, in January. The PSC is expected to vote on the company’s plan this July. Second, the PSC unanimously approved Georgia Power’s 13th Vogtle Construction Monitoring Report in February. And later that same month, Georgia Power filed the 14th VCM Report to be voted on in August. Third, Southern Co. and AGL Resources received unanimous regulatory approval of our companies’ proposed merger from the Georgia PSC earlier this month, with all intervening parties in support of the settlement agreement. Fourth, Georgia Power has agreed to extend its current rate plan until 2019, and to keep base rates flat for the next few years. Fifth and finally, as you may recall in January, Georgia Power filed an application with the Georgia PSC for review of the $350 million settlement with the Vogtle 3 and Vogtle 4 EPC contractors. The Commission voted to move forward with an expanded process which will examine the full project cost and schedule. Consistent with that February order, Georgia Power filed a Supplemental Information Report, which provides compelling support that all project costs incurred to date for Vogtle Units 3 and 4 have been prudent, and that the current cost and schedule forecast is reasonable. The filing includes reports from several subject matter experts, which support that conclusion. Over the next six months, Commission staff and Georgia Power will review this information, which may result in an agreement this fall for the Commission to consider. Let’s move to an update on the construction status of Plant Vogtle Units 3 and 4. The Vogtle 3 and 4 nuclear expansion project continues to progress with multiple milestones achieved in the first quarter. The transition to Westinghouse and its affiliate as the single contractor is complete. Fluor is fully engaged in providing on-site leadership to the construction efforts. We’ve seen increased productivity at the work site, including 24-hour coverage in critical path areas of the project. Expected near-term milestones include the placement of the final large construction modules in the Unit 3 nuclear island, CA02 and the 400-ton stainless steel CA03 module. For Unit 4 four, we anticipate setting the CA05 module and getting the five-story, 1,100-ton CA20 module ready for hook later this summer. Now let’s turn to an update on the Kemper County project. We’re making good progress on modifications and improvements to the refractory lining of both gasifiers, and addressing issues identified during the initial fluidization and refractory cure-out on Gasifier A. We are also in the process of remediating issues with the lignite feed and drying systems as we approach testing of the gasifier using lignite. In March, we completed the refractory cure-out of Gasifier B, reaching full operating temperatures while successfully operating the gasifier in pre-lignite feed mode. Over the next couple of months, utilizing Gasifier B, we expect to achieve first syngas production, and later this summer, initial power production using syngas. We continue to estimate an in-service date for the entire facility in the third quarter of this year. Reflected in the financial results we released today, we have recorded additional dollars to account for the projected schedule cost through September largely to accommodate the revised schedule for Gasifier A. I will now turn the call over to Art for a financial and economic overview. Arthur P. Beattie – Chief Financial Officer & Executive Vice President Thanks, Tom. As you can see from the materials we released this morning, we had solid results for the first quarter of 2016, reporting earnings of $485 million, or $0.53 per share, compared with earnings of $508 million or $0.56 per share in the first quarter of last year. First quarter results for 2016 include after-tax charges of $33 million related to increased cost estimates for the construction of Mississippi Power’s Kemper County project. First quarter results for 2015 included after-tax charges of $6 million for the Kemper project. Earnings for the first quarter of 2016 also include after-tax charges of $14 million related to the proposed acquisition of AGL Resources and PowerSecure International. Excluding these items, Southern Company earned $532 million, or $0.58 per share, during the first quarter of 2016, compared to $514 million, or $0.56 per-share, in the first quarter of 2015. The major earnings drivers year-over-year for the first quarter of 2016 included retail revenue effects across all our regulated operating companies, and lower nonfuel operating and maintenance costs, offset by mild weather and higher depreciation expense. Southern Power also contributed positively year-over-year as a result of anticipated benefits from renewables projects expected to be in service in 2016 and increased revenues from renewable projects placed in service in 2015. Moving now to an economic and sales review for the first quarter. Economic growth in the first quarter of 2016 was modest and our retail sales results are encouraging. Total weather adjusted retail sales grew 0.4% in the first quarter, led by strong residential sales, which were up 1.4% for the quarter. Growth in our residential class continues to be driven by strong customer growth as a result of faster population growth compared with the rest of the nation. Regional market fundamentals are strong, and we expect our regional economy to outpace the national economy. The housing sector appears poised for a modest uptick, and the economy continues to add jobs at a decent pace. Residential construction spending continues to grow, driven by the integration of millennials into the workforce. Atlanta added the most new apartments in the nation in 2015, and even more units are expected to come online in 2016. Nationwide, Atlanta’s multi-family forecast is second only to that of Brooklyn, New York. Weather adjusted commercial sales were up 0.8% for the first quarter. This marks five consecutive quarters of positive growth in commercial sales, and we expect to continue this momentum into the second quarter. Atlanta’s office market vacancy rate was 16.2% at the end of 2015, the lowest rate since 2008. This marks a move from absorption in existing properties to accelerated new office construction. Industrial sales were down 1% in the first quarter. Our regional manufacturing sector continues to adapt to weak demand, and U.S. dollar remains a challenge for export-oriented businesses. I think it’s significant to note that some of our largest industrial segments experienced maintenance outages during the first quarter. We expect them to return to operations soon, supporting our positive outlook for stronger industrial sales for the remainder of the year. We are also encouraged by certain economic indicators that suggest an improving industrial production outlook. The ISM Manufacturing Index increased to 51.8% in March, signaling a prospective expansion in industrial production for the first time in six months. New orders in production improved for a second consecutive month, with new orders posting the largest monthly gain since 2009. Manufacturing employment in the U.S. declined in March, but our service territory has experienced a strong rebound with manufacturing employment up 1.8% year-over-year. All four of our states posted manufacturing job gains. Four of our 10 largest industrial segments saw increases in sales year-over-year. Paper and transportation, along with lumber, stone, clay and glass, led the way, largely attributed to a continued recovery in the housing sector. Our economic development pipeline continues to be strong. There has been a 69% increase in year-to-date jobs announced compared to the same period in 2015. We have also seen a 19% increase in the year-to-date capital investment announced compared to that same period in 2015. The geographic region we serve continues to attract businesses that are seeking well-established transportation networks, lower cost of living, a capable workforce, attractive climate and low-cost energy. Before turning the call back over to Tom, I will briefly cover three final items. First, our earnings estimate for the second quarter. We estimate that Southern Co. will earn $0.70 per share in the second quarter of 2016. Secondly, I’d like to highlight our dividend announcement last week. Our Board of Directors approved a $0.07 increase in our common dividend to an annualized rate of $2.24. This is our 15th consecutive annual increase and marks 68 years, dating back to 1948, that Southern Co. has paid a dividend to its shareholders that was equal to or greater than that of the previous year. But the decision to increase the dividend isn’t about the past, it’s all about the future. It’s the strength of our underlying franchise, together with our continued focus on remaining an industry leader through innovation that underpin the board’s decision to support our objective of providing superior risk-adjusted total shareholder return to investors over the long run. I would like to note that with the five-year extension of bonus depreciation, our expected cash coverage of dividends is approximately 10% higher than before the extension and 20% higher than our recent historical average. Finally, I want to provide an update on our financing plan. The year is off to a great start. We completed a $1.2 billion syndicated term loan for Mississippi Power in the first quarter. This term loan provides much needed liquidity to Mississippi Power. Also in the first quarter, Georgia Power became the first retail regulated utility in the U.S. to issue green bonds. In doing so, they follow Southern Power, which became the first investment-grade power producer in the U.S. to issue green bonds last November. Demand for both of these green bond offerings exceeded our expectations. As we look ahead, executing our holding company financing plan is a key priority. This plan includes issuing approximately $8 billion of debt and a minimum of $1.2 billion of – in equity in 2016. Our internal plans, which were deployed last fall, have generated approximately $270 million so far this year. We will look to supplement those plans with additional common equity, and we are taking steps to preserve several options for achieving this. We expect to issue the debt in most, if not all, of the equity in advance of closing the AGL Resources transaction. While these issuances are intended to accommodate all of our holding company needs for 2016, our financing needs could increase to the extent that incremental investment opportunities present themselves, including Southern Power growth projects. Southern Co. is committed to maintaining a high degree of financial integrity, and our financing plans are intended to support our current credit ratings. I will now turn the call back over to Tom for his closing remarks. Thomas A. Fanning – Chairman, President & Chief Executive Officer Thanks, Art. Following a successful and eventful 2015, Southern Co. has entered 2016 with strong momentum. Our franchise business continues to perform at a high level, solidifying our position as an industry leader in all phases of the business. We are seeing continued progress on major capital projects, and our customer focused business model continues to serve us well. Our pending merger with AGL Resources is progressing through the approval process. The proposed merger has been approved by AGL Resources’ stockholders and the Federal Trade Commission. And we’re making good progress with relevant state approvals, and we continue to expect the transaction to close in the second half of this year. We are also excited about our pending acquisition of our PowerSecure International. Subject to the PowerSecure shareholder vote on May 5, we expect to close in the second quarter. PowerSecure is a premier provider of distributed infrastructure, offering primarily commercial and industrial customers, innovative solutions to meet their individual reliability, energy efficiency or green objectives. Our business model has traditionally focused on making, moving and selling energy, predominantly in front of the customer meter. PowerSecure accelerates our opportunity to extend our make, move, and sell business model to the other side of the utility meter as innovative new technologies emerge and customers’ need evolve. In conclusion, we believe Southern Co. is well positioned for continued success in 2016 and for years to come. Bolstered by the strength of our 26,000 employees and their commitment to provide clean, safe, reliable and affordable energy to customers and communities we serve, we are enthusiastic about the future. We are now ready to take your questions. Operator, we’ll now take the first question. Question-and-Answer Session Operator Thank you. One moment please for our first question. Our first question comes from the line of Greg Gordon with Evercore ISI Team. Please proceed with your question. Thomas A. Fanning – Chairman, President & Chief Executive Officer Hello, Greg. Greg Gordon – Evercore ISI Hey, guys. Good afternoon. Arthur P. Beattie – Chief Financial Officer & Executive Vice President Good afternoon. Greg Gordon – Evercore ISI So the financing plan with the $1.2 billion of equity, $930 million remaining this year, should we presume that’s the totality of the equity that you envision needing to fund the AGL deal? Because when I look at the 2017, 2018 projected financings, you have no equity there. Arthur P. Beattie – Chief Financial Officer & Executive Vice President That’s the plan, Greg. I did say in the script that should there be additional opportunities either from Southern Power or other accretive investments, that we would finance those plans or any of those additional investments with a balanced – with an eye towards maintaining our credit support. Thomas A. Fanning – Chairman, President & Chief Executive Officer Yeah, and, Greg, the other thing that Art alluded to a wee bit, but I think we talked about it on prior calls, that we had a – I forget. For Southern Power, I guess we have $1 billion of CapEx in 2017. We’re seeing probably more – a larger opportunity set to increase that number in 2017. So as Art said, to the extent we do see further investment opportunities, we will be supportive of our credit ratings in that. Greg Gordon – Evercore ISI Okay. Because you have Southern Power at $1.2 billion this year, and then you have that drop into $500 million in 2017 and 2018 on slide nine. You’re saying that you could theoretically be double that? Arthur P. Beattie – Chief Financial Officer & Executive Vice President Well, it’s hard to say what multiple it would be. We just have, as Tom said, opportunities for success. Thomas A. Fanning – Chairman, President & Chief Executive Officer Yeah, Greg, I’ll go to the CapEx. In CapEx, I think we’re showing that we were $2.4 billion this year in CapEx for Southern Power, and $1 billion next year and $1.5 billion in 2018. I’ll bet you, we’ll be bigger than that in 2017 and 2018. That would just be my guess right now. Greg Gordon – Evercore ISI Got you. And is this mostly in utility scale solar or is it a mix of solar, wind, and other sort of – type of generation? Thomas A. Fanning – Chairman, President & Chief Executive Officer Yeah, it’s going to be more of a tilt towards wind if you were going to make a projection on that. But we’ll have solar in there, for sure. As you remember, we had a lot of success in 2015, way beyond what we thought. Some of those are CapEx numbers that will show up in 2016. Some – and remember, now that we’ve had the extension on the tax preference item, some of that could push over into 2017. So you’ll still see solar, you will see more wind than we’ve traditionally done in the past, would be my guess. Greg Gordon – Evercore ISI Got you. Got you. I was looking at the wrong slide. I should’ve been on slide 16, sorry. So the – and you guys talked about a sort of a $300 million earnings contribution from – on the last earnings call from… Thomas A. Fanning – Chairman, President & Chief Executive Officer Southern Power. Greg Gordon – Evercore ISI …Southern Power this year. Thomas A. Fanning – Chairman, President & Chief Executive Officer Yeah. Greg Gordon – Evercore ISI And you sort of weren’t certain whether that was a sustainable level of spending, but you seem much more confident now than you were on that last call relative to this – am I implying too much there in terms of the sustainability of the earnings contribution with Southern Power given this CapEx outlook? Thomas A. Fanning – Chairman, President & Chief Executive Officer Yes. So remember, it’s hard to track because you’ll spend money and then net income will show in a current year. I wouldn’t go overboard on CapEx contribution and one – mean net income contribution in one year equaling net income in the next year. What I will say is I am reasonably confident that we’re going to spend more CapEx, and therefore, you should see net income contributions be a little bit better, and recall, than what we’ve had in our kind of base case. And what you recall is to the extent there is more of a tilt towards wind, those are kind of 10-year production tax credits as opposed to the single shot you get from solar. So the net income profile following that CapEx investment will look a little different. Greg Gordon – Evercore ISI Okay. Thomas A. Fanning – Chairman, President & Chief Executive Officer Overall, we’re seeing a very bullish market for Southern Power. Greg Gordon – Evercore ISI Awesome. One more question, then I’ll cede the phone. Can you talk about the earnings ramifications of the deal, the AGL settlement in Georgia for Georgia Power? Thomas A. Fanning – Chairman, President & Chief Executive Officer We expect Georgia Power to perform consistently with the past. It’s going to be a lot of hard work, but Art got some data, but I think, look, when we see Georgia, probably among all the states in the Southeast, seven, eight dynamite kind of relative economic performance, and I think Georgia has traditionally shown that they’ve been able to hit their targets in all levels of performance; operations, customer satisfaction, safety, including earnings. And I think Paul Bowers that runs that business and his team has shown their ability to hit their target very well. We think it is manageable. Arthur P. Beattie – Chief Financial Officer & Executive Vice President Yeah, Greg, I think it’s important to note that the Vogtle NCCR tariff will remain in place. So that will – that’s not part of the rate extension plan. With the economy being very strong in Georgia, with no major capital additions such as new environmental needing recovery, they think that the rate plan extension is manageable during that timeframe. Greg Gordon – Evercore ISI Fantastic, guys. Have a great day. Thomas A. Fanning – Chairman, President & Chief Executive Officer Yeah. You, too. Thanks. Operator Our next question comes from the line of Julien Dumoulin-Smith with UBS. Please proceed. Thomas A. Fanning – Chairman, President & Chief Executive Officer Julien, how are you? Julien Dumoulin-Smith – UBS Securities LLC Good. They got my name right there. Thomas A. Fanning – Chairman, President & Chief Executive Officer (24:48) I don’t know. At least I got it right. Thanks for joining us today. Julien Dumoulin-Smith – UBS Securities LLC Hey. Thank you, rather. So perhaps a follow-up on Greg’s last question, just to hit you with this quickly. Why a little bit more wind in the mix rather than solar? Just to pick on that before going to another thing. Thomas A. Fanning – Chairman, President & Chief Executive Officer Just opportunity set is bigger. I think with the extension of the PTCs, we’re seeing a lot of interest there. I think you also see certain state kind of policy level encouragements. You’re seeing companies getting ahead of the Clean Power Plan. We’re just seeing a good market for it. And remember, as we have shown in our solar business so far, the fact that we can strike good, strategic relationships with developers, you recall the one that we’ve done the most, this is within solar, is First Solar… Arthur P. Beattie – Chief Financial Officer & Executive Vice President And Recurrent. Thomas A. Fanning – Chairman, President & Chief Executive Officer And Recurrent has been a great partnership. We’re starting to strike those same relationships in the wind business. And so we kind of have a favored position to be able to strike large-scale deals. We are seeing that develop. Julien Dumoulin-Smith – UBS Securities LLC Got it. Excellent. And then turning over to the Vogtle side of things just quickly. You talk about, I suppose, a potential for a deal this – agreement this fall. Could you elaborate on what you need to see to get there? Just what are kind of the key milepost, more importantly? Perhaps some of the sticking points or moving pieces? Thomas A. Fanning – Chairman, President & Chief Executive Officer No, this process is set up, and most discussions of this nature are best held in a quiet form. Let the company and the staff evaluate all the evidence in front of them, and come up with what we believe will be a constructive result. That will then get presented to the Commission, the Commission will undertake whatever is necessary to approve it. Julien Dumoulin-Smith – UBS Securities LLC Got it. And then just turning to the PowerSecure deal. Congratulations, moving in a new direction. Just curious, how do you think about that in the context of the earnings of Southern Power and where you want to scale that business? I mean, how should we think about that, call it tomorrow after you close, but then years down the line as part of the growth trajectory? Thomas A. Fanning – Chairman, President & Chief Executive Officer It certainly contributes to our growth trajectory, but it’s a really small deal. Despite its small size, we think it is important for us to learn. See, I don’t really view this as a new business. What I’ve been saying pretty consistently is that this notion of evolving the make, move, and sell, then pass electricity through a meter into where, because of technology enabling, because of customer requirements, think data centers or other customers in the industrial or commercial space which have enormous reliability requirements, which is necessary in this kind of new kind of digital community we find ourselves in, look, I think this is just a natural evolution of – particularly in areas where they are challenged with reliability or price or service, for customers to want us to provide them solutions. So this is – we may do some business in our territory, be glad to do it, we’ll probably do it under the brand of the operating companies, and we had done some of this already. But I think the ability to grow this business, to learn in markets other than our own, will be positive for us all. It will add to our earnings trajectory, I don’t think it will be enormous because of the small size of this thing initially, but I think it certainly enhances our ability to compete in the future. And we’re very excited about it. Julien Dumoulin-Smith – UBS Securities LLC Right. Excellent. I’ll leave it there. Thank you, gentleman. Thomas A. Fanning – Chairman, President & Chief Executive Officer Thank you, my friend. Operator Our next question comes from the line of Jim von Riesemann with Mizuho. Please proceed with your question. Thomas A. Fanning – Chairman, President & Chief Executive Officer Hey, Jim. How are you? James von Riesemann – Mizuho Securities USA, Inc. How are you? Thomas A. Fanning – Chairman, President & Chief Executive Officer Awesome. James von Riesemann – Mizuho Securities USA, Inc. Perfect. Arthur P. Beattie – Chief Financial Officer & Executive Vice President Hey, Jim, buddy. James von Riesemann – Mizuho Securities USA, Inc. Hey. Hey, Art. Can you just talk a little bit about how your thinking is evolving with the equity needs? I know the $1.2 billion, how much of that is broken down between internal plans versus the external dribble? Could you refresh my memory? And at valuations at these levels, why don’t you just go out and issue the rest of the equity right now? Arthur P. Beattie – Chief Financial Officer & Executive Vice President Jim, and I think we’ve said this pretty consistently since the announcement of AGL last August, was that we’ll consider all of our options as we move through. We began with internal programs, but we always have the option in front of us to raise the equity in different ways. James von Riesemann – Mizuho Securities USA, Inc. Okay. Okay. And switching over to the dividend, congratulations on that, but when is it time to actually start bumping up the growth rate instead of just the absolute dollar amount of the dividend? Thomas A. Fanning – Chairman, President & Chief Executive Officer Yeah, we talked about that. I want to say when we announced the AGL deal, given our belief in the growth contribution from AGL, recall, we increased our corporate expectation, our long-term growth rate from 3% to 4% to 4% to 5%. And what we said back then was, of course, this is the purview of the board and it is ultimately their decision, but we saw a pathway to increase the rate of growth from $0.07 in a year to $0.08 in a year. And recall, as Art mentioned in his comments, even since then, because of bonus depreciation and everything else, we are substantially better from a cash flow coverage standpoint than we were. So, the financial integrity underlying that decision even to increase the rate of growth of our dividends has improved since we spoke to you by 10%. It’s over kind of recent historical averages by 20%. So if anything, our ability to do that as measured purely by financial integrity is even higher than what we suggested. So I think we’ll keep it right there for now… James von Riesemann – Mizuho Securities USA, Inc. Okay. Thomas A. Fanning – Chairman, President & Chief Executive Officer …and look forward to the rest of the year. James von Riesemann – Mizuho Securities USA, Inc. Hey, and then one last thing on Vogtle. I know we’re getting a little out of our skis here, but when do you think it’s time to decide whether or not you take bonus depreciation on those two new units? Arthur P. Beattie – Chief Financial Officer & Executive Vice President We are. That’s in the plan. James von Riesemann – Mizuho Securities USA, Inc. Okay. Just making sure. Thank you. Arthur P. Beattie – Chief Financial Officer & Executive Vice President Yeah. Okay. Thomas A. Fanning – Chairman, President & Chief Executive Officer Thank you, sir. Operator Our next question comes from the line of Ali Agha with SunTrust. Please proceed with your question. Thomas A. Fanning – Chairman, President & Chief Executive Officer Ali, good afternoon. Ali Agha – SunTrust Robinson Humphrey, Inc. Good afternoon, Tom and Art. Arthur P. Beattie – Chief Financial Officer & Executive Vice President Hey. Ali Agha – SunTrust Robinson Humphrey, Inc. First question, going into the quarter, you guys have budgeted $0.53 for Q1. You ended up at $0.58. Where would you say things that came out better than your original expectations? Arthur P. Beattie – Chief Financial Officer & Executive Vice President Yes, Ali, it’s pretty simple. You break it down, most – about half of it came out of the operating companies and half of it came out of Southern Power. We announced a couple of new projects on Southern Power that weren’t in the plan at least in terms of the first quarter. And then with the OPCOs, there are a lot of moving parts there. We had, obviously, a headwind on weather. It was $0.02 below normal from an expected perspective, but we offset that with non-fuel O&M and some other moving parts that gave us the other piece of the $0.05 of outperformance. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay. And on that non-fuel O&M, you’ve been fairly consistent talking about that growing, call it, 3% or so on an annual basis. But it was actually down in the first quarter. So how should we be thinking about that from a full-year perspective? Arthur P. Beattie – Chief Financial Officer & Executive Vice President Yeah, I think on the full year, you’re going to see the whole measure of it. In the first quarter of last year, we had a lot of outages going on versus not so many this year. So that’s a big driver. But as you do your plan, I think we’re still in that range of 3% to 3.5% growth. But remember that there’s never such a thing as a normal year of – for non-fuel O&Ms. Thomas A. Fanning – Chairman, President & Chief Executive Officer Right. And just remember, our historic – I mean, ever since, I guess – well, certainly since I’ve been CFO here, so that spans quite a bit of time and even before that a little bit, we’ve always had this ability to – we have a flexible budgeting system here that takes out the volatility of weather. So, we’ve been able – I think we’re one of two companies in history, anyway – there’s no promise for the future – where we have always hit our earnings. Now, again, I can’t promise that or the lawyers will throw me in jail, but we have been able to demonstrate our ability to manage our spending, and at the same time, show industry-leading reliability and customer service kind of statistics. The other challenge, Ali, which is kind of interesting, is as we now have committed to hold Georgia Power’s rates flat through 2019, there is likely to be some impact on O&M. But remember, it’s not going to be done just with O&M. It’s the economic growth. And we believe this all to be manageable. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay. And then, as you pointed out, on a weather-normalized basis, first quarter was up 0.4%. You guys have been budgeting 1.1% for the year. Is that still a good target for the year? Thomas A. Fanning – Chairman, President & Chief Executive Officer Yeah, call it a percent, and we beat our PhDs in Economy here. They’re really good guys here – we have a great staff – beat them up unmercifully getting ready for the call. They absolutely believed that from a bottoms-up analysis, when we look at some of our major customers, particularly in the chemical sector and then some other large sectors, with the outages that were undertaken, as those outages now go away, we’ll see industrial production and sales return to where we thought they would be. Ali Agha – SunTrust Robinson Humphrey, Inc. Okay. And last question, Tom. Can you remind me, the year guidance you have out there, $2.76 to $2.88, had that assumed that AGL would close sometime this year and contribute? And if not… Thomas A. Fanning – Chairman, President & Chief Executive Officer No. Ali Agha – SunTrust Robinson Humphrey, Inc. …does that give you some extra cushion within this year if you close AGL before year end? Thomas A. Fanning – Chairman, President & Chief Executive Officer No, we – yeah, we have evaluated that without AGL. And remember, we said that AGL is kind of an interesting animal for this year. They get most of their earnings in the first half of the year. We’re going to close probably in the second half of the year. So their earnings to Southern won’t be much at all. When we gave you that guidance, that was ex-AGL. So you’ll see AGL start to contribute in 2017 and beyond. Ali Agha – SunTrust Robinson Humphrey, Inc. I see. So coming in perhaps even earlier than expected wouldn’t really move the needle for the bottom line this year. Thomas A. Fanning – Chairman, President & Chief Executive Officer No, I would focus on Southern standalone for this year. And then, we’ll certainly give you new numbers for next year. And we’ve already kind of indicated what the contribution on the margin will be from AGL 2017, 2018, 2019. Ali Agha – SunTrust Robinson Humphrey, Inc. Right. Thank you. Thomas A. Fanning – Chairman, President & Chief Executive Officer Yes, sir. Thank you. Arthur P. Beattie – Chief Financial Officer & Executive Vice President Thank you. Operator Our next question comes from the line of Paul Ridzon with KeyBanc. Please proceed with your question. Thomas A. Fanning – Chairman, President & Chief Executive Officer Hello, Paul. Paul T. Ridzon – KeyBanc Capital Markets, Inc. Good afternoon. Tom, how are you? Thomas A. Fanning – Chairman, President & Chief Executive Officer Super. Hope you’re well. Paul T. Ridzon – KeyBanc Capital Markets, Inc. I am, thank you. It seems as though you’re getting a bigger opportunity set around Southern Power with the renewable. And you’ve kind of talked about this in the past, but what’s the right size from a percentage standpoint of earnings for Southern Power to be? Thomas A. Fanning – Chairman, President & Chief Executive Officer Yeah, so if I remember this right, they are currently around 6%, somewhere around there. We think very easily, we could take Southern Power to about a 10% number. And recall, 10% would include AGL. So the net income contribution could really grow pretty high if you’re just talking about an appetite kind of number. Paul T. Ridzon – KeyBanc Capital Markets, Inc. Okay. So you’ve got some runway there. Thomas A. Fanning – Chairman, President & Chief Executive Officer A lot of runway. Paul T. Ridzon – KeyBanc Capital Markets, Inc. And you said you think Southern Power will do about $300 million of net income this year? Thomas A. Fanning – Chairman, President & Chief Executive Officer Yes. Paul T. Ridzon – KeyBanc Capital Markets, Inc. And then just a little… Thomas A. Fanning – Chairman, President & Chief Executive Officer And the other thing – hey, excuse me, Paul, just real quick. Everybody should just remember that this isn’t a merchant business, this isn’t something that lives and dies in the so-called organized markets. We do long-term bilateral contracts, credit-worthy counterparties, no fuel risk, no transmission risk. This is a credit quality kind of profile similar to our own. Paul T. Ridzon – KeyBanc Capital Markets, Inc. And then just what’s happening in the A-trains and B-trains? What’s the current state, just review that? Thomas A. Fanning – Chairman, President & Chief Executive Officer Yeah, so – yeah, yeah, yeah. So, we’re actually reasonably happy with our progress. The refractory repair on A actually has taken longer, and there’s been a few more things we found with refractory. They’re called – I forget what they call them, rat holes or something like that. But we’ve gone in and evaluated. So it’s really, it – and this is not a high tech kind of operation. It’s just in a fairly closed space, hour-intensive thing. And really, the schedule of A is really what had pushed out kind of from August to September. The schedule of B has been delayed some weeks, but we still believe that we will have syngas and ultimately, electricity this summer. We’re very happy with the way that’s going. Paul T. Ridzon – KeyBanc Capital Markets, Inc. So B has been brought up to temperature and any hotspots have been addressed? Thomas A. Fanning – Chairman, President & Chief Executive Officer Yes. Paul T. Ridzon – KeyBanc Capital Markets, Inc. And then on your prepared remarks, you said something about the syngas, some issues that you found. What’s happening there? Thomas A. Fanning – Chairman, President & Chief Executive Officer I’m not aware of that. I don’t think we’ve – we haven’t made syngas yet. The other stuff that you may be remembering, let me kind of – I’m trying to remember what you’re referring to. Lignite dryers had been one. But that’s been something we’ve talked about for some time, and again, you’ve got to remember the lignite is essentially 40% moisture. So as we move the lignite from the field into the plant, it goes through a process where we essentially remove the moisture. In fact, one of the cool environmental aspects of this plant is that it actually produces water. We capture the evaporation and use it in the plant. One of the feeders for the lignite dryer had blades, if you can imagine, like an old-timey – I always use these metaphors, but it’s like an old-timey, non-power lawnmower where you would push behind it and it would actually feed the lignite into the plant. What we’ve done is expanded the distance of the blades of that feeder that would allow us not to experience clumping and some other thing. So it’s just stuff like that we continue to work through and in a rather pedantic manner. And that’s really what startup is all about. You operate certain areas of the plant and we make improvements where we see capable. Paul T. Ridzon – KeyBanc Capital Markets, Inc. Thank you very much. Thomas A. Fanning – Chairman, President & Chief Executive Officer You bet. Arthur P. Beattie – Chief Financial Officer & Executive Vice President Thank you. Operator Our next question comes from the line of Mark Barnett with Morningstar. Please proceed with your question. Thomas A. Fanning – Chairman, President & Chief Executive Officer Hey, Mark. Mark Barnett – Morningstar Research Hey. Good afternoon, everybody. Thomas A. Fanning – Chairman, President & Chief Executive Officer Good afternoon. Mark Barnett – Morningstar Research I know you can’t talk to specifically about any figures, and you kind of touched on the subject of managing around a settlement at Georgia Power a little bit already. But I am curious, given the size of the annual investment that you’re making there, and again, some of the investments that you’re making for growth. Outside of the nuclear recovery and kind of the other ongoing cost recovery mechanisms, what are your principal levers on the O&M front, on the capital front, for managing under that? Thomas A. Fanning – Chairman, President & Chief Executive Officer So outside of capital, you’re asking what levers would we pull to manage O&M, essentially? Mark Barnett – Morningstar Research Well, O&M, yeah, and outside of capital that you kind of get the more concurrent recovery on. Thomas A. Fanning – Chairman, President & Chief Executive Officer Okay, that’s outside a clause. Mark Barnett – Morningstar Research Right. Thomas A. Fanning – Chairman, President & Chief Executive Officer Okay. Well, so, obviously, I think one of the things anybody would look at in terms of looking at O&M first, as you have seen demonstrated with us in the past, we put an enormous priority on giving for our customers, the best reliability in the United States, and we’ve demonstrated that for years. So one of the areas that we look at is attacking from an O&M standpoint, non-reliability related areas. So that would go to overhead. Any sort of thing in terms of corporate governance or those kinds of things. We think we have some capability to effectively manage reducing overhead inside our financial plan. And that’s both at the parent and at the operating company. Arthur P. Beattie – Chief Financial Officer & Executive Vice President Mark, I think you also need to think about it from a capital perspective, and bonus depreciation will certainly give a little headroom to that opportunity. But as you look forward to 2019, that should be concurrent with the time when Unit 3 of Vogtle comes online, so it all fits pretty nicely into a plan as we move out in time. Mark Barnett – Morningstar Research And could you remind me, with the settlement with Georgia, is there anything in there that you’d have to go back and re-examine, if you had like a timing delay from another approval, or is it pretty much Georgia is kind of set and tied up at this point? Thomas A. Fanning – Chairman, President & Chief Executive Officer If you look at the regulatory calendar and those five items I enumerated earlier, I think we’re pretty well committed to the three-year deferral. And I think that given everything we’ve talked about, we can perform as we have in the past within that construct. I think we’re in good shape in terms of evaluating everything else. The – I think AGL is behind us and Georgia. I think we’re in good shape. Mark Barnett – Morningstar Research Okay. Appreciate that, guys. Thanks. Thomas A. Fanning – Chairman, President & Chief Executive Officer Yes, sir. Operator Our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed with your question. Thomas A. Fanning – Chairman, President & Chief Executive Officer Hey, Paul. Paul Patterson – Glenrock Associates LLC Good afternoon, guys. Hey, how are you doing? Thomas A. Fanning – Chairman, President & Chief Executive Officer Super, I hope you’re well. Paul Patterson – Glenrock Associates LLC I’m okay. So… Thomas A. Fanning – Chairman, President & Chief Executive Officer Come on, you got to do better than that. Paul Patterson – Glenrock Associates LLC Oh, okay. The sales on slide seven, do those – were those adjusted for leap year or not? Arthur P. Beattie – Chief Financial Officer & Executive Vice President No. Paul Patterson – Glenrock Associates LLC Okay. And then with respect to the changes and everything that’s going on at Kemper, how do you guys – I mean, do you guys still feel comfortable about the 2012 CPCN and operationally being able to bring the plant on – I mean, is there anything that – I mean, I know there are obviously delays and what have you, but in terms of what you’ve seen so far, and I know there’s testing to be completed and what have you. But so far, do you see anything that gives you any pause in terms of being able to have the plant operationally active (45:59) as you guys had planned on? Thomas A. Fanning – Chairman, President & Chief Executive Officer No. Yeah, no. And I think one of the things that I think is distinguished by our operation at Mississippi in Kemper County plant (46:09), sometimes painfully, is that getting it done right the first time is really important to us. We’re not going to rush and try and slam this thing in. And what we will do is essentially demonstrate a reasonable history of reliable commercial operations and then file the rate case. We think that’s the right way to go. And we continue to do everything along the way. So this hasn’t just been, oh, something broke and let’s fix it. We are making improvements along the way. For example, one of the things that we demonstrated beautifully during 2015 is our ability to run that plant on natural gas. It provided, I don’t know, 40% of the energy to the citizens of Mississippi Power – or the customers of Mississippi Power, and did so in an extremely economic way. So as you think about the ability for that plant to provide not only electricity from syngas, but in a dual fuel sort of way to provide a really high level of reliability by supplementing any outages or whatever with natural gas-fired electricity, it’s exceedingly attractive, and in my opinion, more than meets the obligations we’re setting forth when this plant was originally ordered. Paul Patterson – Glenrock Associates LLC Okay. Great. The rat holes and the corrosion… Thomas A. Fanning – Chairman, President & Chief Executive Officer Yes. Paul Patterson – Glenrock Associates LLC …was there – I mean, we’ve heard about this with other similar operations. Is there any issue there that’s changed at all? Thomas A. Fanning – Chairman, President & Chief Executive Officer I mean, we fixed it. But – so remember, there were some gaps from these nozzles. If you can imagine the riser – remember this thing – I always view it as a letter D, is what it looks like. And the riser is essentially where the lignite comes in and then gets blown up into the air in this kind of beautiful helix design. So you have both fuel stock moving into the riser, as well as a very intricate set of air-fired nozzles. What we found in the original fluidization test – even though the fluidization test went beautifully, the nozzles worked well, the material circulated amazingly, and remember, I was there the day it happened. We found that because there was a lack of seals among and between the refractory and these nozzles, some of the material got behind the refractory and the hard face (48:45) and caused what we call these rat holes. But these are really small, really small kind of tunnels, if you will, that were filled up with material. As we had – and the way you fix it is you tear the refractory back off and put it back on. It’s not a high-tech operation. What has taken a lot of time is it’s a confined space and has just been time intensive. And the more we’ve looked around the refractory, we found more of these rat holes, we had to tear more of it off and put more back on. We have not seen, to any sense, that degree of rat holing with B. And recall, I think B finished its fluidization test like in one day. So we learned a lot going from A to B. Paul Patterson – Glenrock Associates LLC Okay. Great. I really appreciate it. Thomas A. Fanning – Chairman, President & Chief Executive Officer Yes, sir. Thank you. Operator Our next question comes from the line of Dan Jenkins with State of Wisconsin Investment Board. Please proceed with your question. Thomas A. Fanning – Chairman, President & Chief Executive Officer Hey, Dan. How are you? Daniel F. Jenkins – State of Wisconsin Investment Board Pretty good. How about you? Thomas A. Fanning – Chairman, President & Chief Executive Officer Terrific. Thank you. Daniel F. Jenkins – State of Wisconsin Investment Board So, just a couple here on the earnings for the quarter. You had the $0.08 positive from the revenue – retail revenue impact. I was wondering if you could break that down a little bit in terms of jurisdiction, or were there specific rate actions and will they lap coming up, or how should we think about that going forward? Arthur P. Beattie – Chief Financial Officer & Executive Vice President If you look at Mississippi, start there, we got a couple cents from the Kemper in-service assets. Alabama had some CNP adjustments of – that I think were related to environmental assets. It’s around $0.03, and then Georgia had a number of adjustments that in total was between $0.02 and $0.03. Daniel F. Jenkins – State of Wisconsin Investment Board Okay. And then on the $0.04 from the non-fuel O&M, I know in the past, you’ve adjusted your discretionary maintenance when – to kind of match when sales are impacted by weather. Is that kind of what’s going on here or is that there’s something else involved? Arthur P. Beattie – Chief Financial Officer & Executive Vice President On a year-over-year basis, there’s lots of moving parts there. But as I mentioned earlier, there was lower other production expenses, there were more outages in the first quarter of 2015 and the first quarter of 2016. There were other expense reductions in, say, our distribution area and then administrative in general, generally relate to reductions and pension expense and some other cost in that particular category. Daniel F. Jenkins – State of Wisconsin Investment Board Okay. And then I had a question on the decline in your fuel costs and revenue. I know – realize that doesn’t have any impact on the bottom line, but just kind of thinking about that, is it – that driven more by volume or price or mix or… Arthur P. Beattie – Chief Financial Officer & Executive Vice President It’s – actually, loads were down quarter-over-quarter from a year ago, but gas prices are down 31% year-over-year as well. So it’s been about… Daniel F. Jenkins – State of Wisconsin Investment Board How about coal? Any impact from coal pricing or transportation or not so much? Arthur P. Beattie – Chief Financial Officer & Executive Vice President I would say it’s negligible. It’s most of the load is being driven by gas at this point, at least in the first quarter. Daniel F. Jenkins – State of Wisconsin Investment Board Okay. And then just a couple questions on Vogtle. I know last year – or last quarter on your near term, you had for Unit 3, the setting the containment vessel ring 2 (52:48), and I was just wondering what the status of that was. Is that upcoming or where are we… Arthur P. Beattie – Chief Financial Officer & Executive Vice President Yeah. I think when you think about Unit 3, the next big things would be CA03 and CA02, which are the kind of the two big remaining modules into the nuclear island for Unit 3. And then I believe the other ring will be added beyond that timeframe. That’s my understanding of the schedule. Daniel F. Jenkins – State of Wisconsin Investment Board And then just on your slide, this time you have for Unit 4, setting the CA05, but I assume that has to – that can’t occur until the CA01 is completed, correct? Arthur P. Beattie – Chief Financial Officer & Executive Vice President No. Don’t get any idea that these are in the order of insertion. CA05 goes in well before CA01. Daniel F. Jenkins – State of Wisconsin Investment Board Okay. And I think that’s all I have. Thank you. Arthur P. Beattie – Chief Financial Officer & Executive Vice President All right, Dan. Thank you. Thomas A. Fanning – Chairman, President & Chief Executive Officer Thank you, sir. Appreciate it. Operator And at this time, there are no further questions. Sir, are there any closing remarks? Thomas A. Fanning – Chairman, President & Chief Executive Officer Yeah. Thank you so much for your time here this afternoon while (54:05) I will wrap this up inside an hour. How about that? That’s historic for a Southern Co. earnings call. Delighted to do it. Off to great start. Earnings are good. Our operations are good, and a lot of work in progress that we look to have some significant announcements on coming up our next earnings call in July. So we look forward to seeing you then. Take care. Operator Thank you, sir. Ladies and gentlemen, this does conclude The Southern Co. First Quarter 2016 Earnings Call. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!