Transcript Slide 1

SESSION 1
Power
”Today’s Vision & Tomorrows Reality”
Session Presenter
Ed Day
EVP - Engineering & Construction
Southern Company Generation
Cautionary Statement Regarding Forward-Looking
Information
NOTE: Much of the information contained in this presentation is forward-looking information based on current expectations and plans that involve risks and
uncertainties. Forward-looking information includes, among other things, statements concerning customer growth, earnings per share growth, environmental
regulations and expenditures, dividend payout ratios, estimated construction and other expenditures, sales growth, fuel cost recovery, renewable energy capability,
and completion of construction and other projects. Southern Company cautions that there are certain factors that can cause actual results to differ materially from the
forward-looking information that has been provided. The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of
future performance and is subject to a number of uncertainties and other factors, many of which are outside of the control of Southern Company; accordingly, there
can be no assurance that such suggested results will be realized.
The following factors, in addition to those discussed in Southern Company’s Annual Report on Form 10-Q for the year ended March 31, 2008, and
subsequent securities filings, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: the
impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric
utility industry, and implementation of the Energy Policy Act of 2005, environmental laws including regulation of emissions of sulfur, nitrogen, mercury, carbon, soot or
particulate matter and other substances, and also changes in tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well
as changes in application of existing laws and regulations; current and future litigation, regulatory investigations, proceedings or inquiries, including the pending EPA
civil actions against certain Southern Company subsidiaries, FERC matters, IRS audits and Mirant matters; the effects, extent and timing of the entry of additional
competition in the markets in which Southern Company’s subsidiaries operate; variations in demand for electricity, including those relating to weather, the general
economy, population and business growth (and declines), and the effects of energy conservation measures; available sources and costs of fuels; effects of inflation;
ability to control costs; investment performance of Southern Company’s employee benefit plans; advances in technology; state and federal rate regulations and the
impact of pending and future rate cases and negotiations, including rate actions relating to fuel and storm restoration cost recovery; the performance of projects
undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities; internal restructuring or other restructuring options that
may be pursued; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to
Southern Company or its subsidiaries; the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due; the ability to obtain
new short- and long-term contracts with neighboring utilities; the direct or indirect effect on Southern Company’s business resulting from terrorist incidents and the
threat of terrorist incidents; interest rate fluctuations and financial market conditions and the results of financing efforts, including Southern Company’s and its
subsidiaries’ credit ratings; the ability of Southern Company and its subsidiaries to obtain additional generating capacity at competitive prices; catastrophic events such
as fires, earthquakes, explosions, floods, hurricanes ,droughts, pandemic health events such as an avian influenza, or other similar occurrences; the direct or indirect
effects on Southern Company’s business resulting from incidents similar to the August 2003 power outage in the Northeast; and the effect of accounting
pronouncements issued periodically by standard-setting bodies. Southern Company and its subsidiaries expressly disclaim any obligation to update any forwardlooking information.
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The scale of the Electric Utility Industry in the U.S.
 There are more than 3,000
electric utilities with
combined assets of more
than $800 billion
 The industry is a mixture of
large and small companies
where the top 10 companies,
by total assets, serve 1/3 of
the customers
 Regardless of size, we are all
facing common challenges
of meeting future growth and
reliability needs in a very
capital intensive industry
Total Assets ($ Billions)
Southern Co
45.8
Exelon
45.4
AEP
40.3
FPL
40.1
39.1
Dominion
Edison Intl
37.5
PG&E
36.6
AES
34.5
Entergy
33.6
Capital Intensity for select U.S. sectors
2.1
Railroads
Utilities
1.6
0.9
Airlines
Metals
0.4
Package & Freight
0.4
Specialty Retailers
Auto Manufacture
Computer Software
3
49.7
Duke
0.2
0.2
0.1
For example, Southern Company is planning to
invest $14.4 B over the next 3 years
Total = $14.4 B
Transmission &
Distribution
$4.1 B
Environmental
$3.9 B
New Generation
$2.5 B
Existing Generation,
Nuclear Fuel, and Other
$3.9 B
4
Significant resources
will be required
• 30 million man-hours, equivalent to 5,500
craft labor persons per year
• 125,000 tons of steel
• 5,000 miles of cable
• 150,000 cubic yards of concrete
The industry will face financial strain due to the
significant scale of capital expenditures

The Philadelphia Utility Index (UTY) companies are projecting $197 billion in capital
expenditures over the next 3 years, representing more than half their total equity value

Credit ratings have declined since the last wave of significant baseload construction
Utility Credit Ratings
3-Year Capital Expenditures as Percent of
Market Capitalization for UTY Companies1
1970
85%
70%
$15 B
2007
A
53%
28%
33%
16%
$10 B
AAA,
AA
80%
BBB or
Lower
$5 B
71%
A
3-year Capital Expenditures
3-year Capital Expenditures / Market Capitalization (%)
Sources:
5
1
2
17%
Bloomberg (2008-07-15) and individual company filings and Investor Relations presentations
Standard & Poor’s Industry Report Card, America's Electric Utilities: Past, Present & Future, 8th Edition, by Hyman, Robert C.; Andrew S.; and Leonard S.
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Tomorrow’s Challenges (here Today)
 Increasing costs
• Capital projects plus O&M:
 Commodity escalations
 Material & equipment cost increases
 Longer lead times
 Labor: availability, costs, and quality
 Limited number of contractors and suppliers
 Environmental Regulation Uncertainty
• SO2 – NOx – Hg – CO2
 New and existing generation decisions
• Coal – IGCC – Nuclear – Gas – Renewables
• Unit retirements and replacements
• Fuel cost increases and volatility
Percent Change in Price of
Construction Materials
60.0
51.8%
50.0
47.2%
44.0%
40.0
Percentages
36.0%
30.0
25.0%
20.0
10.0
3.0%
0.0%
0.0
2000
-3.8%
-1.3%
2001
2002
2003
2004
2005
2006
-10.0
Percent Change Per Year
Total Change
2007
2008
Sizeable Material Requirements
(examples)
 Environmental Project (2 unit site):
•
•
•
•
Steel: 10,000 tons
Concrete: 45,000 yds3
Site Grading: 2,000,000 yds3
Elec./Control cable: 300 miles
 New Generation:
 Nuclear (2 units):
•
•
•
•
Steel: 20,000 tons
Concrete: 280,000 yds3
Site Grading: 9,000,000 yds3
Elec./Control cable: 950 miles
 Combined Cycle 2x1:
•
•
•
•
Steel: 5,000 tons
Concrete: 15,000 yds3
Site Grading: 500,000 yds3
Elec./Control cable: 220 miles
Southern Company
Peak Craft Labor Demands
Enviro
New Gen
O&M
6000
Craft
5000
4000
3000
2000
1000
0
2007
2008
2009
2010
2011
Timeline for Regulatory Requirements
Under the CAA for the Utility Industry
NO2
SO2/NO2
SO2/NO2
* Litigation
Primary
“Marginal” Ozone
Secondary
NAAQS
SO2
NAAQS
NAAQS
Revised
Primary
Attainment
Date
“Basic”
Ozone
Final 8-hr
NAAQS
Ozone
NAAQS
CAIR
NAAQS
*
Ozone
“Moderate”
NAAQS
Issued
Designations
Attainment
Next Ozone
Ozone
Attainment
Demonstration
1-hr
NAAQS
NAAQS
Date
CAIR CAIR
SIPs due
CAIR Phase
NAAQS
Revision
Attainment
FIP&1 SIPs
I Seasonal
CAIR Phase II Seasonal
Revoked*
Date
26
Due
NOx Cap
NOx Cap
Rule
Ozone
New Administration
'04
'06
'05
CAMR
Issued*
Mercury
De-listing
Rule*
BART
Final PM-2.5 NAAQS rules
Designations
PM2.5
'07
Revised
PM-2.5
NAAQS
Hg De-listing
Reconsid.
Completion
'08
'09
PM-2.5
Attainment
Demonstration
SIPs due
Regional Haze SIPs due:
BART & Reasonable
Progress
Mercury
'10
Mercury
CEMs
required ???
PM-2.5
Attainment
Date
'11
'12
'13
Next PM-2.5
NAAQS
Revision
CAIR Phase I Annual
SO2 Cap
'14
'15
CAMR Phase
I Hg Cap ???
CAIR
Phase I
Annual
NOx Cap
New PM-2.5
NAAQS
Designations
'16
'17
CAIR Phase II
Annual SO2 &
NOx Caps
Second Regional
Haze SIPs due
Haze
-- adapted from Wegman (EPA 2003)
'18
New generation capacity is a primary driver of
new capital requirements
•
Demand for electricity will increase 30 percent by 2030 according to the
U.S. EIA – which requires 213,000 MW of new capacity
• The scale of this need requires baseload generation
•
“Fuel diversity is key to affordable and reliable electricity. A diverse fuel
mix protects electric companies and consumers...” -- EEI
• Fuel markets have become increasingly volatile
Price increases since July 20041
Oil
Gas
Coal
247%
116%
112%
The ability to build baseload generation is a critical
component for the future of the electric utility industry
1
11
Price increases are illustrated using the following commodities: Oil: West Texas Intermediate Crude (WTI), Gas: Historical Henry Hub, Coal: Central Appalachian.
New baseload generation technology is also
critical to the success of reducing CO2 emissions
 We must be able to develop and
deploy technologies that reduce
greenhouse gases while making
sure that electricity remains
reliable and affordable
 “The availability of carbon
capture and storage and nuclear
generation in the full portfolio
provide large-scale supply-side
emissions reductions,
protecting the electricity market
and limiting the rise in
wholesale electricity prices.” -EPRI1
1
2
12
Technical potential for reducing
CO2 emissions by 1.3 billion
metric tons by 20302
Advanced
Coal
13%
CCS
Nuclear
18%
Renewables
18%
27%
PHEV/DER
11%
Efficiency
13%
The Full Portfolio, by Revis James , Director of the EPRI Energy Technology Assessment Center, in EEI’s Electric Perspectives, January/February 2008 edition.
EPRI 2008 Analysis
Companies must be proactive in aggressively
pursuing these options now
 Generation plants have long lead times requiring
coordinated long term planning
Nuclear
10-12 years
8-10 years
Pulverized Coal
IGCC
Transmission Line1
6-7 years
8-10 years
Engineering & Permitting
Construction
 CCS requires significant lead time before the technology will
be commercially viable
1
13
Construction and interconnectivity requirements for a 100 mile transmission line
Looking Forward
 Continued project growth:
• Advanced planning and engineering is required
• Sourcing flexibility for equipment and services
• Need for qualified contractors and suppliers
• Efficient utilization of labor
 Opportunities / Risks
•
•
•
•
•
Future load growth with reliability standards
Regulatory uncertainty
Economic uncertainty
Capital and O&M spending decisions
Fuel diversity through technology development
Delivering Value in a Changing Environment
“The electric utility industry in 1970 coped with a host of increasingly
difficult problems. Fortunately, although The Southern Company system
experienced its share of such industry difficulties as fuel shortages and
environmental concerns, our companies were affected less adversely
than the public may have inferred as a result of nationwide news coverage
during the year.”
“Even the most casual observer of current events during 1970 became
aware of the variety of problems being encountered by the U.S. electric
utility industry. Public concern over fuel shortages, power supply,
inadequacies, need for increased revenues, and ecological
considerations – more visible through increased national news coverage
– amplified the concern already being shown by the nation’s producers of
electric power.”
1970 Southern Company Annual Report