We are live on the webcast. Thank you all for joining us for Southern Company's 2016 Analyst Day. In just a moment, I'm going to turn it over to Tom Fanning, Chairman, President, and Chief Executive Officer of Southern Company. 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 and in this meeting. Reconciliations to the applicable GAAP measures are included in the financial information and slides we released this morning and available at investor.southerncompany.com. With that, Tom, you got the floor.
Thanks. Good seeing you. Well done. That was a fascinating, riveting segment right there. Hi. Hey, welcome everybody. Thank you for being here. I know you could be a lot of other places, and I know it's a busy day, so we appreciate you investing your time here. We have a great agenda, I think. One of the things I want you to know, especially 2016, has been, last 12 months, hyperactive at Southern. I think from the times that I've talked to you in the past about the ebbs and flows of earnings, from the challenges we face, from the event risk and everything else, this is a period where, in my opinion, Southern is as good as it's ever been. In fact, for the first time ever, we are extending our notion of what is long-term growth.
We have great transparency, great faith in what we're able to deliver. In fact, we're getting to a point where it's going to be a little hard to knock us off of what we could do. I must repeat what Aaron said. I can't tell you with certainty what the future will bring and everything else. However, I believe Southern Company's position is as well today as it's been in my history, and that goes back a long way. Let's go on to my stuff. Much of what you hear around our industry is not based in that. You get all day long and you live in the idea, as we do, our competitive intelligence group at Southern, with models and with trying to identify what the ebbs and flows of a company will be and what the risk tolerances are and everything else.
I must say that what makes Southern unique is our how's, it's not our what's. You say, "Well, the how's, come on, that's in so many respects a bunch of pablum or whatever propaganda." It's not. It is fundamentally important. You may remember when I was CFO, people kept asking me, "How can you have such constructive relationships?" It is because we believe in the dogma of customers in the middle of everything we do. It is the faith that if we deliver the best price, 12% now below national averages, the best reliability, we do by a wide margin, the best customer service. The top four customer satisfaction utilities in the United States by our customer value benchmark surveys are ours, the top four. Southern Company earns a constructive relationship.
By the way, when we did Southern Company Gas, okay, now the AGL Resources thing, one of the things I always worried about was the hubris that, oh, Southern Company's great in the Southeast and we can just go anywhere. Well, in fact, AGL Resources, under Drew's leadership and Beth and that whole team there, also earned a terrific relationship with their regulators. When we came to Illinois to talk about getting that deal approved in New Jersey and Maryland and Virginia, son of a gun, they already had a bedrock of a reputation of a great company, and we stepped in, and I think it followed through very easily. When you think about the event risk of trying to get something approved, it's not about, oh, listen, this thing makes sense, and look at my spreadsheet. It's all about personal relationships.
When you think about the relationship we have with the DOE and how we were able to help with getting more funding to Kemper, it's all about relationships. We are active in Washington, we are active in every state in which we do business, and we are active whether we have a transaction in front of them or not. That is the way we do business. At the end of the day, based on our values, what we believe is that we must be a great citizen wherever we serve. We must make the communities better off because we're there, and we do that relentlessly. That is the company whose Southern Company is. That matters in long-term success. Don't ever underestimate that. I'm going to move away from the how's, I'm telling you that is a bedrock. That's why that's the first slide up here.
I'm going to tell you why I believe Southern Company is as good a position as it's ever been. It really goes to this. Southern Company has had this terrific dogma again of having exceedingly low risk. It's not without risk, exceedingly low risk and regular, predictable, and sustainable earnings. When I look at history, and if you look at it on an X basis adjusted what have you, we are one of two companies that has, in history, never missed our projections. Okay? And we have the narrowest range of just about anybody out there. What I'm trying to tell you is why I can't say that's going to happen in the future. I believe it will, I can't tell you that it will. Who knows what'll happen?
Son of a gun, we are conservative, and when we tell you something, it's what we believe, and we follow through on it. You saw earnings today. We're going to have a great year this year, I believe. It's all predicated on this model. If you look at 2015, just about all of our earnings run to the state-regulated electric utility, and we have earned constructive regulation in each one of those states. I would argue it's the best franchise in the U.S. Even beyond the state-regulated electric utilities, we have Southern Power, which has provided long-term contracted business models. In other words, long-term bilateral contracts, creditworthy counterparties, no fuel risk, no transmission risk. We are kind of replicating the same business risk in that model. You know we don't believe in the merchant model. We don't like that stuff. We don't chase fads.
We don't do crazy transactions. We stay right in the middle of the road, low risk, regular, predictable, sustainable, and as a result, the TSR that we deliver, I think, is high-quality earnings. We've been really busy in 2016, and holy smokes, we added a gas company. We added a pipeline, and we added something called PowerSecure. What's all that about? Before I get into those transactions, let me just assure you that the business model is the same. In other words, we're replicating, we're continuing, let me say, the Southern Power business model on steroids. Good heavens. Two years ago, Buzz, we did $800 million of CapEx, mostly in renewables at Southern Power. A year ago, we did $2.5 billion. This year, we're doing $4.5 billion. That's not going to continue.
It's going to be more like $1.5 billion going forward. We're pivoting towards wind. We're not moving away from the long-term bilateral creditworthy counterparties, no fuel risk, et cetera. The 5% there is even interesting. I know this says 5% state-regulated long-term contracted. I would argue the predominant amount of that 5% is as well. For example, Drew Evans, CEO of Southern Company Gas, will show you that one slug of that 5% is our Georgia natural gas subsidiary that is in the retail gas business in the state of Georgia. Son of a gun, that is not a volatile business. If you look at it year over year over year over year, it is regular, predictable, and sustainable. Okay? It is not a very volatile business.
The other thing that's in there that also makes up a big slug of what is that 5% is PowerSecure. You may have seen last week we were on Squawk Box, and we had a little bit of a media day, the idea of a strategic venture with Bloom. Okay? We invested around $400 million in the Bloom effort. Those contracts are likewise 15 years long. The best companies on the other side. Creditworthy. We featured in that presentation Home Depot, and you heard Carol Tomé, the CFO of Home Depot, talk about how important it was to have this notion of a distributed infrastructure business. In this case, the Bloom technology married up with the proprietary storage technology that PowerSecure provides. We think there's a lot of follow-on business with this notion of long-term asset contracts. We're following exactly the same model.
Just because it's green, just because it's not part of that 95%, doesn't mean we're not staying to the same dogma. I could take you through a lot of detail, and in fact, what Southern Company does, we take around the management council. We actually work hard, and I do this with my board as well, what we call our beliefs. This is like the tip of the iceberg. We actually take the whole company through a very in-depth set of beliefs around how we're trying to run our business. What will the future bring? We typically look at two time frames here. One time frame has been dealing with around the year 2025. What do we believe the near-term impacts are going to be? Then we go on to a 2040, 2050 environment. Why does that matter?
We always try to start with what is the correct long-term answer, and then we make the short-term work. This is not a company that chases quarterly earnings or even annual earnings. We really believe in the sanctity of long-term planning, and we try to build our business that way. All of us know that, heck, it's hard to figure out what's going to happen next year, much less than 10 years from now, and heaven forbid, what's going to happen by 2050. We do know there are inexorable changes that we must provide options to face. That is, we know that there is a trend in the United States to a low or no carbon future. Southern Company is doing more than anybody in the United States to prepare for that future.
We know that while the Clean Power Plan right now is under legal review, something like that may emerge, and we stand ready to play offense in that environment, not defense. We know that technology is changing at a pace faster than any of us, even as you're sitting here, know. We know that customer requirements are changing. See Home Depot. We could try and stop it. I love to say keep the waves off the beach, or we could figure out a way to create options, not big bets, little bets that will enable us to manage whatever risk comes, we know it's coming, in an effective way. There's nobody else in the United States in our industry doing these kinds of things. I'm very proud of that. Let me go through these real quickly.
You must know that there is a wealth of robust thinking around this. We do this annually, formally, we do it regularly on an ongoing basis. Real quick. Make. This is the generation side of business. Let me go through them quick. We know if you believe in a low to no carbon future in America, that nuclear is really important. We're proud to be leading America in building Vogtle 3 and 4. It's going great. It's going to be really hard to build new nukes. We'll create options to build new nukes, but keeping our hands in that is really important, and we are doing beautifully in the new nuclear that we're building at Vogtle 3 and 4. We'll see how that emerges in the future. The next one is coal. We're advancing 21st century coal.
We know we've been through our bumps and bruises on that one. Son of a gun, I'm proud to tell you today that it is working right now. Unit A is producing electricity right now using syngas. The technology works. We know that there's regulatory work to do to get it finally into rate. We know that's a big challenge, but otherwise, the technology works. We're thinking about, while it may be hard to replicate that elsewhere in the United States, using that technology, in our view, licensing it overseas. We've struck agreements in Serbia, Romania, Poland, South Korea, China. This technology is relevant elsewhere.
Otherwise, without this kind of forward thinking in terms of using coal with advanced technologies, the most advanced in the world that our proprietary robust research and development arm has created here at Southern, we know that certainly coal will ebb as a generation resource of the future. You look at renewables. We're one of the biggest owners of solar in the U.S. Remember, strategically, we saw that that had some relevance back in the Southeast. That was our first way to invest in renewables. We weren't an initial mover in wind because it was not directly applicable to the Southeast. What you've seen in the intervening years, certainly during my tenure at Southern, as Chairman, is that all of a sudden, we're starting to buy wind over the wire. Georgia Power, Alabama Power, Gulf Power, all now buy wind resources over long-haul transmission.
We've gotten in that business, we're making a pivot now away from solar. We'll still do some solar, away from solar into wind, we'll talk about that later. When I think about now the future issues around renewables and around base load, gas becomes a dominant solution. On our own, forget Southern Gas. On our own, we were about the third or fourth largest consumer of natural gas in the U.S. That's the transition of the fleet. Remember, before I took over, we were about 70% coal, 16% gas. Now, I don't know, 48%-50% natural gas and about 28% or so, maybe 30% coal, depending on the weather. Probably run our coal assets a little more than we thought we would just because we had an extraordinarily hot summer. It is clear that gas is becoming more important.
When I think about the future, especially Clean Power Plan, everything else, we know that renewables have intermittency. We know in order to handle intermittency, we need CTs. By the way, coal's probably eroding in importance as a base load facility, it's really hard to build new nuclear. We're losing base load. We'll need more CCs, those CCs will run harder than they ever have. Do you know our capacity factor during the third quarter of our CCs was nearly 80%? They run like champions. The best reliability in the U.S. We can do this stuff. That's where Make is going. The other thing is when I say, oh, it's nuclear and coal and renewables and natural gas, energy efficiency, the cleanest kilowatt hour is the one you never consume.
Son of a gun, we know that technology enabling, customers requiring, we will jump over the meter. What has formerly been make, move, and sell into a meter, a customer does something on the meter. We now put make, move, and sell on the customer premises. Son of a gun, PowerSecure was our bet there. Now a small bet for us, but we see a tremendously evolving market. My sense was the worst thing we could do, the riskiest thing we could do in that environment is do nothing. You will see that our projections going forward for energy sales is declining. This model you will see, this 5% growth rate, is based on 0%-1% energy sales. We are robust within that range. We're adding 1% new customers. That says our energy usage is either 0% to negative 1%.
That's what our model, that's what our 5% highly confident projections are based on. If that is happening, what should we do? What we have done is made a reasonably small bet with PowerSecure. Now we've just added Bloom. What we are seeing more and more is the ability to recapture some of that share by having assets on the customer premise, long-term bilateral contracts, creditworthy counterparties, the best customers you can think of in the U.S., people especially that have pristine reliability requirements. Now, at least at this point, we are not able to say who all they are. Home Depot came out. Think about other companies in the U.S. that have the most pristine reliability requirements. You know who they are if you think about them.
We do business there today, and what we are doing is building a business for the future, again, that is regular, predictable, and sustainable. In the move side, if you guys look at our CapEx programs, good heavens, we have for years spent about $1 billion a year on CapEx on the T&D business, okay? We're continuing that. I remember after the blackout in the Midwest and the Northeast, was it Bill Richardson said, "A third world transmission system." Garbage. If you look at Southern Company's operation of the grid, it's terrific. We've been an early adopter of things like smart grid, and we've done an early adopter of smart meters and all this stuff. We've done that forever. Oh, now add to that the idea of move with a distribution system.
Buying AGL Resources, now Southern Company Gas, we bought the best LDC, the biggest LDC in the U.S. When you look at Atlanta Gas Light, the LDC that covers Georgia, think about the synergies. When you think about the notion that they are able to show a tremendous growth rate, 10% or so, into the next decade, these are under safety-related pipeline replacement programs under tariffs. This is not risky business. This is not some crazy, "Oh, I've got a placeholder out here." This is business we should do as Americans, and we're doing it. Oh, by the way, when you look at strategy and you look at more of the move segment, as the third largest consumer of natural gas, oh, now we've added AGL Resources, now Southern Company Gas. Holy smokes, we're the most important natural gas company in the U.S.
We know that pipelines have been a big deal across the U.S. The two theories I've talked to you about, one was north to south, kind of Marcellus to the south, and the other was west to east, that cheap gas out there in Texas and Oklahoma and Arkansas and a variety of other places, and bringing it east. We've been looking for some time at pipeline deals. We've kept in contact with all these folks all the time. I talk about this relationship business. Rich Kinder and I probably visit once a year. Comes to my office, sit around, drink coffee, and yuk it up. Among all the transactions that we looked at, striking a strategic relationship with Kinder Morgan with the Southern Natural Gas pipeline made perfect sense to us. It is replicated in these financials you will see.
To us, it looks like an annuity. It is strategically located. It gives us an option for future growth. The projections you will see include virtually no future growth. We're not depending on any kind of huge new pipeline deal. Yeah, we've talked about options, and we kind of know the transactions we're adding on, but they're not enormous. They're not big. You'll see this stuff later. When you add Sonat, Southern Natural Gas, into Southern, we put it under the leadership of Drew and his team in Southern Company Gas. We think that is a terrific business for us. Okay? Now when we think about adding Southern Power, all that, we have a real good foundation to grow. That is basically our move business. The sell and consume really goes to PowerSecure, this notion of technology enabled, covers required, playing offense, long-term contract. That is what we believe.
We will continue to focus on R&D. Before I'd gotten this job, R&D was all kind of, not all, but majority. Larry Monroe, where's Larry? Right there. Larry was voted the 16th most important guy over the last 25 years in the industry. He runs our R&D effort. That's central to who we are. In the past, our R&D has been focused on protecting coal. Environmental controls, and they've done a great job. The R&D now has been reoriented to the future and thinking about how we can make electricity viable and grow in this digital age. Before I got here, we were generation, we were wholesale transmission, distribution, customer service, and now we basically occupy the full value chain. When I think again about the strategy of make, move, and sell nuclear, coal, natural gas, renewables, energy efficiency, where are we placing our big bets?
Just look at the CapEx. It's in natural gas infrastructure, not the commodity, and it is around renewables. That is where we are making our big bet. I think those are darn good bets. We're creating an option on the far right side of this chain, and I think it is an option well-placed. When I say we're in as good a shape as we've been in some years, holy smokes, we're showing 5% growth. Remember, even when I first started as CFO, we were building Vogtle and building Kemper and spending CapEx. Compared to our net committed capital, we're able to talk about earnings per share growth rates in the 5%-7%. As we got bigger and the CapEx started to wane, our growth rates started to get smaller.
We had bonus depreciation, and then we dropped our earnings per share growth rate to 3%-4%. We didn't sit here and tell you we're just going to fill it up with stuff we don't know what it is. We always tell you what we believe. We were 3%-4%. With natural gas, with Southern Company Gas, we increased it up to 4%-5%. With Sonat and PowerSecure and unexpected success with Southern Power, we're able to say to you now we are robust 5% long-term growth rate. Now, it's not 5%. You all know that. That's a number. That's a point. That's equilibrium. Equilibrium is a point in time in which you move through. We'll be around 5%, but 5% is our best guess as to where we're going to go. It's not 4%-5%. It's 5%.
Because we've done so much in 2016, or actually the last 12 months to now, we have removed a boatload of event risk from this projection. Let's just go through it real quick. Southern Power growth opportunities, I told you, $800 million to $2.5 billion to $4.5 billion. Now, Buzz, our estimate is for the foreseeable future, for the next five years, about $1.5 billion. Is there upside to that? Yeah, maybe. Okay. That means our 5% is better. I think we'll do the $1.5 billion. I'm an old finance guy, 40% of my career at Southern now. I'm 36 years at Southern. Holy smokes, I'm getting older. It was in the finance side. I used to say, I actually went to Harvard and did all this stuff at one of these programs. There's no value creation in finance.
All these people want to sell you stuff. The investment banking community loves to sell you pots and pans, they say, "Oh, yeah, you can do yieldcos, and you can do MLPs, and you can do this, and you can do that." Garbage. We believe in fundamental finance. I will argue, however, in my experience, for the first time, the finance group here at Southern has actually created value. What they've done, we made a little bit of a bet around AGL. We did a cash deal. Some people ran around and said, "Oh, man, you're just levering up." Garbage. We have reduced and preserved the financial integrity of Southern. We've replaced equity. We have coverages that are attractive going long. The opcos are doing fine. Southern Company has an attractive credit profile. So we've replaced that equity. We're moving forward. We did landmark financing.
When you think about the creativity of this group, these were creative deals, they were not crazy, trendy, sexy deals. We rather identified pockets of investors in which to create room to do other financing. When we did this cash deal for AGL, we replaced the equity at prices better than we thought. When we did the debt deals, we did debt deals better than we thought. We did it in a way that now somebody help me here. What's the total debt portfolio of Southern? How big is it? How many billion? $41 billion, 3.9% cost with a 16-year or so average life. You have stuff in your seats. You will show that is the best debt portfolio in the U.S. in our industry, hands down, nobody even close. From an EVA standpoint, what a time to raise $20 billion.
Maybe we're lucky, in this case, I think we were lucky and good. Let's go forward with some more events. Southern Company Gas, we already talked about. I think it's a 10% growth business, I think that with our investment under these regular, predictable, sustainable regimes of safety-related pipeline replacement program, we're going to continue to do well. Sonat is an annuity that gives us an option for future growth should we choose to exercise it. Plant Ratcliffe. Thank the Lord today we are producing electricity on that first-of-a-kind technology. We have passed the test, I think, that it will work. Okay? Now we still have to go COD, and we get that, and we're projecting today that our best estimate is November 30th, we're moving ahead. You can see it working. Now our attention will focus to getting it in rates.
That conversation has already begun, we're going to do that. Then Vogtle. Let's talk real quick. We just had a very important settlement that was reached agreement with the staff subject to commission approval. Paul, do you want to say anything about that? This is Paul Bowers, CEO of Georgia Power.
Yeah. Many of you already had some conversations today with us about that settlement. In page 24 in your book, you'll see kind of an outline of what that settlement really means. It reemphasized what Tom said about the constructive regulatory environment, trying to de-risk, if you will, the future of Vogtle construction as we go through the process. Go back to last year. We had the litigation, settled the litigation, which gave us the opportunity to have the conversation with the Public Service Commission in Georgia about prudence. Going through the last nine months or so, we were able to have an agreement with staff that is outlined on that page 24, which really gives you some idea of what we're going to do with this plant associated with the additional cost associated with $1 billion.
That really has de-risked, giving us certainty about what we're going to do with this plant.
Let's reinforce the headline on Vogtle that we are relentless about. It is the notion that when that plant was ordered to be built, we thought it would be a 12% price increase. We still believe that it's going to be somewhere at the end of the day, a 6%-7% price increase.
Exactly right.
That's it. It's going beautifully. We're on schedule.
Absolutely.
We've gotten the litigation settled. We've gotten the increased cost associated with that litigation approved. Well, not approved yet. Recommended to be approved by the Commission.
The staff has made the recommendation, the Commissioners will take it up, hopefully before the end of the year, and vote on that stipulation.
Thank you, Bud. Steve O. Steve Kuczynski runs, in my opinion, the best nuclear fleet in America now. Steve O., tell us about the progress on three and four.
Progress on construction, getting it built is going very well. We are particularly encouraged about our progress on the second unit. As expected, first unit tackles the new construction challenges, we leverage those learnings over into the second unit. We're seeing, as you typically would expect on a major construction project, a very strong improvement in productivity and construction progress. We're retiring risk in construction, and we're retiring risk in operations. We're fortunate to have the same technology, the AP1000s being started up in China. They're exactly two years ahead of us. Two years from now, we'll be in the exact same spot they will be. They're progressing through startup, looking to load fuel here in the next month or two, and that is progressing as expected. We're bringing down risks on both construction and operations.
We have folks on the ground full-time in China watching that startup, so we get the best learnings out of that. The key individuals out of Westinghouse and Fluor that actually built the plants in China, they're sequencing to our facility in order to bring additional expertise to make sure we're successful. I think we're well-positioned for our June of 2019 and June of 2020, bringing these units to operation.
Fantastic. Thank you, Bud. Acquisition of PowerSecure. You've seen the material. I've already asked one person, asking, "Golly, why are you talking about PowerSecure if it's so small?" Interesting. PowerSecure is this window on the world, and we thought it was an important small, but important bet nevertheless for us to make. That is, I'm not just going to let these sales erode. Zero to 1% is what's robust in this model. What we do, what PowerSecure has been so far, I call it distributed infrastructure, broadly. It's been distributed generation. They do things in a proprietary way in terms of backup generation, in terms of a variety of products and services, including storage proprietary. They do a terrific job.
The thing that we were so attracted to with PowerSecure is they had built a book of business with 200 firms, many of which want to remain secret, particularly with respect to the proprietary technology and what's on campus, so that they maintain a commercial advantage. Anywhere these guys have gone, they have gotten repeat business. They have built a following among the finest companies in America, especially those with pristine reliability requirements that we think gives us the ability to reproduce in a sustainable way. It's not just distributed generation. It goes to things like energy efficiency and broadly, utility infrastructure, microgrids, all kinds of things. What they needed, they were a publicly traded company, successful. They needed somebody big. One of the things Southern Company has done so well for so long, I go back to customer satisfaction.
Our key accounts team has been voted regularly among the best in the U.S. These are our very biggest customers. We can take now PowerSecure and link them up with our key accounts and take this business anywhere in the U.S. By striking a strategic relationship with somebody like Bloom, son of a gun, we can put Bloom generators over here, and we can build a book of business now with your storage technology. Now we can expand that to the full range of what is distributed infrastructure, and we will do all of that under a long-term bilateral contract, taking no fuel risk, taking no transmission risk, building a book of business very similar to what we've done at Southern Power, just little miniature little deals. We think this is exciting.
I just mentioned Bloom, depth of breadth. It's been a terrific business so far. It's very small to us right now, but think of it as a cheap option for the future and a way to beat what may be eroding sales in this whole industry. I finish with this slide, and I love this. Value is a function of risk and return. This is my belief. This is not fact. It is a belief. Southern Company has traded at a premium for it until we started on the Vogtle plant and the Kemper plant. Southern Company has traded at a PE premium for a long time.
I understand with the perceived risk associated with Vogtle and Kemper and a variety of other things we were facing, I think you can see that we can make the case that not only. Remember how I talked about the flattening earnings curve? Remember I used the expression the divot? The divot has been filled in. The curve has been raised. Many of the important risk factors around our big transactions have moved away. Some still remain, I admit that. When you look at the predominance of our story, it is inescapable, in my opinion, that risk is reduced in this company significantly. You look at return, and now we're not three to four, we're not four to five, we're five. That's not a point estimate. I understand it's going to vary around five. I get that.
From a risk-return standpoint, value in our PE premium should be restored. That's my opinion. My job is to show results to you where you're going to bet on it dependably. I think we're there, and I think we're moving forward in a constructive way. Thank you. What I'm going to do now is turn over to a series of presentations to my teammates here. I guess first is Mark Crosswhite, CEO of Alabama Power, Stan Connally, CEO of Gulf Power, they will talk to you about the integrated regulated business.
Go get them, fella.
Thank you, Tom. Good morning.
Good morning.
We represent these four companies, Mark and I, we want to acknowledge our peers, Paul Bowers and Anthony Wilson, and the hard work they do at these operating companies. As you think about what Tom said, the long history Southern Company has had, these four regulated retail state jurisdictions have had an incredibly valuable part of Southern Company's history and will continue doing that. We've been a part of helping create this economic atmosphere of growth in our jurisdictions for at least 90 years in every one of our companies, dating back to the early part of the 20th century. We've been supporting that Southern value proposition, it starts with, like Tom said, that customer and community value proposition. We thought we'd just start by talking about some of those very fundamentals that makes customers and communities successful as we get started here.
Go ahead, Stan.
Mark. Stan said it. We've been serving our area of the country for about 100 years now. We've been successful over that time by focusing on the fundamentals. You can see here what we do. Safety, over the past 11 years or so, our recordable incident rate is down about 50%, so we're operating safer than ever. Reliability, keep the lights on. We keep the lights on 99.9% of the time. Industry-leading reliability. When there is a hurricane or severe weather, our folks are recognized across the industry for their ability to restore service very quickly. Customer satisfaction, Tom mentioned it several times. We have the highest levels of customer satisfaction. We track it relentlessly, our companies are always at the top of those surveys. Affordable prices. That's certainly something that we know we have to deliver. We're focused very much on keeping our prices affordable.
All of this focus on the fundamentals allows us to have a constructive regulatory environment in each of our states. For the remainder of our presentation, Stan and I are going to talk about our service areas, we're going to talk about our capital investment, and we're going to talk about the constructive regulatory environments. Service areas. We recognize, Tom's slide started off by saying we're bigger than our bottom line. We really believe that. We know we're only as successful as the communities we serve, so we work very hard to make sure they are successful. It is encouraged, I would say even expected, at all of our companies that employees are very engaged in their community. You will find that's a common theme at each of our operating companies. You'll also see that we do more than just encourage our employees to be involved.
We invest in our communities. We invest in education. We invest in workforce development. We invest in arts and culture, trying to make our service areas better places to live, make them stronger, because we recognize if our communities are stronger, we're stronger.
Yeah. I mean, it literally is a piece of our strategy. It's not just rhetoric. One place we put our money where our mouths are is economic development, helping drive business investment, helping drive job growth in these communities. Every single one of us have a team that engages with the local economic developers, state economic development groups. Mark and I, as well as Anthony Wilson and Paul Bowers, all hold prominent roles in our statewide economic development organizations. As you can see from some of the emblems on this slide, we also offer business recruitment tools, site selection type tools for prospects considering our states. Look, we're having some successes. Just last week in Georgia, Paul, Anthem Health Systems announced up to 1,800 technology-based jobs at a technology center in midtown Atlanta that they will grow in over a period of time.
Another example of that technology sector that's growing in the Southeast. About six weeks ago in Gulf's jurisdiction in Panama City, Florida, Eastern Shipbuilding announced that they had been selected for the first phase of a Coast Guard contract to build their new offshore patrol cutters, the first of what could be 25 ships built right there in Panama City. We're having some successes in the Southeast. By the way, as we were going through our merger with AGL Resources, now Southern Company Gas, our work in the economic development space was one of those things of interest as we talked to the various jurisdictions about what we do in the Southeast and how we can share those practices across our new spaces. Our pipeline of projects remains fairly robust going forward.
We're encouraged that we'll continue to have opportunities to bring new growth and new job growth into the Southeast. I want to transition now and talk more specifically about electricity use in our four state jurisdictions. You can see from the chart we serve, and proudly serve, 4.6 million customers across our four states. What's interesting is you can see the balance of the energy sales mix is really roughly a third, a third, a third. A third residential, a third commercial, and a third industrial. We believe, while this will vary across every state, every jurisdiction, the net migration into the Southeast remains positive. We're looking for customer growth of about 1% going forward. Now at the same time, use per customer usage trends are slowing that growth a bit.
Specifically across the sectors, for instance, in the residential sector, we've seen a share shift, if you will, in the housing market. 10%-15% more multi-family type customers than we've seen historically in that residential sector. Of course, those are smaller spaces, use less energy. You look at both commercial and residential sectors, the energy efficiency, the energy productivity is ongoing. More efficient lighting, more efficient major appliances in those spaces. Then if you think about our largest commercial industrial customers, many of them have corporate goals now, much like many of you probably do, to reduce energy usage or transition to some distributed energy resources. Look, by the way, that gives rise to the opportunity in the PowerSecure business line that we have now. Transitioning to industrial. Certainly, we have seen strong industrial growth since the end of the recession.
That has leveled off somewhat, particularly this year. I'll give you a couple of highlights. In the manufacturing sector, particularly manufacturing employment in the Southeast, has been positive. About a 1.5% growth in manufacturing employment compared to the rest of the U.S., where we've seen it go down about 0.3%. A highlight there would be our transportation sector. We continue to see modest growth in the transportation industries in the Southeast, led by global and domestic growth in vehicle demand. On the other side, in the commodity sector and particularly the steel industry, we've seen some decline year-over-year. Think about the drivers for that. Low oil prices, strong dollar, weak demand, excess global capacity, all impact that commodity sector. I'll note back to the slide we just talked to you about before on economic development.
Every single year, we are looking for opportunities to influence that industrial sector through economic development growth, as well, we also know that the economy overall will impact industrial sales. Tom's already said it, 0%-1% sales growth over this period is what we're projecting, and we continue to hope to influence that through economic development growth. Mark?
Okay. We're going to talk about our capital investment. Stan talked about our customer growth. Customer growth is certainly a component that leads to capital investment, but that's not all of it. We also invest in capital to better serve our customers or reduce operating costs. Good examples of that would be things like self-healing networks for the smart grid, where we see we can make investments that will better serve our customers or bring the cost to serve them down over time. Another major component of our capital investment will be compliance costs, especially environmental compliance. If you see the chart down at the bottom, you will see our projections over the next five years of capital investment at the operating companies. You'll see it's declining somewhat.
Well, it's declining because Vogtle three and four will be winding up during this time period, and many of our major environmental programs will have had the major capital investments made through this time period. Point to emphasize here, and I think Tom alluded to it if he didn't say it directly, the Clean Power Plan compliance is not included in these numbers. These numbers are known environmental or all compliance plans included, not the Clean Power Plan. Clean Power Plan could have some impact in the later years and even beyond on this capital investment. There's more detailed information in your material about the breakdown of the capital investment.
Okay. Well, just picking right up on the capital growth. Certainly as you do that incremental capital growth, we're seeing modest growth in our rate base. You can see over this time frame, 2.6% growth over the time period, and we hope to continue to execute on that. As Mark said, it does not include any response to the Clean Power Plan. Underpinning our ability to invest that capital must be a constructive regulatory environment, and we certainly all feel as though we have constructive regulatory environments in our four respective states. I'll pick up quickly and just talk about the Gulf situation. I'll skip down the page a bit. Many of you know Gulf Power Company filed its 2016 rate case about three weeks ago. It's using a forward-looking test year, using 2017 as that test year.
We would anticipate that we have an outcome on that in the spring or early summer of next year. At the same time, currently right now at Gulf, we have our annual clause filings. That's something we do every year and certainly hope to have a constructive outcome there. We've already talked about Kemper a good bit. Anthony and the team are working very hard to ensure an outcome there that's constructive. As well, they have annual filings that they too will be going through over the next few months, their PEP filing and their clause filings.
Okay. For Alabama has a rate mechanism called Rate Stabilization and Equalization, RSE. It's been in effect since 1982. It is a forward-looking test year process that we go through every year. We'll be making our filings to Alabama Power between now and December 1st, dealing with RSE and any clause filings that need to be made. Georgia, Paul has already talked about the Vogtle prudence case, so I won't go into that. We put on here 2019 rate case and 2019 IRP. What we want to convey there is we recognize that we're always subject to regulatory review and regulatory process, but we don't see anything on the horizon at Georgia Power in a substantial manner between now and 2019. We think we have handled the major issues that Georgia Power is facing until that time. Okay. Solid returns on investment.
You'll see that over the past five years, we have had stable, solid returns among the operating companies. Predictable, sustainable, reliable returns, as Tom would say. How do we continue that going forward? Well, first, we continue to focus on the fundamentals, service, customer service, reliability, safety, working in our communities. We also mitigate our O&M escalation. We rein in inflation in our O&M costs. We're doing that through things now like alternate payment locations, where we're putting payment locations in banks, grocery stores, pharmacies, where if a customer would like, they can go there and pay their bill rather than having to come into an office. Over time, that is going to help us control our O&M costs. Executing there will lead to constructive regulatory results and will allow us to continue to earn solid, sustainable returns going forward.
Okay, just to wrap up. Certainly, we've talked a lot about the Southern value proposition, and we'll continue doing that through the day. A fundamental for us and for all of our team is staying focused on that customer value proposition, which is supported by those very fundamentals that Mark hit early on, service and reliability. We must stay focused there. We've got significant accomplishments on our major projects. You've heard Paul talk about Vogtle. Tom talked about Kemper, both in the construction and the regulatory arenas. Made great progress there, and we anticipate even great progress going forward. Mark said it. We've got visibility on our allowed returns over the near term, particularly at our two largest subsidiaries, Georgia Power and Alabama Power over the near term. That robust capital program is ongoing. I remind you it does not include our response to the Clean Power Plan.
That creates the upside over the long term. Certainly all four of us are supremely focused on delivering those sustainable returns in support of that value proposition going forward. With that, I think we're ready to transition to one of our teammates.
Well, that wraps up our portion.
We're going to take a break.
This is a short change in plan. I think we're going to have a brief break. Here comes the break master right here to tell us what we're going to do.
Yeah, we're going to take about a 10-minute break in the interest of everybody's comfort and hunger and coffee. You all want to keep on going? Well, let's take a quick 10-minute break. Just make it quick. I know you're somewhere out there. Somewhere far away. I want you back. I want you back. My neighbors think I'm crazy. Potatoes and nuts in the pan. You're all I have. You're all I have. At night when the stars light up my room. I sit by myself talking to the moon. Trying to get to you. In hopes you're on the other side. Talking to me too. Or am I a fool who sits alone talking to the moon? Oh. I'm feeling like I'm famous. Let's talk of the town. They say I've gone mad. Yeah, I've gone mad. They don't know what I know.
Because when the sun goes down. Someone's talking back. Yeah, they're talking back. Talking to the moon. Trying to get to you. In hopes you're on the other side, talking to me too. Or am I a fool, who sits alone, talking to the moon? Do you ever hear me calling? Oh oh oh. Oh oh oh. 'Cause every night I'm talking to the moon. Still trying to get to you. In hopes you're on the other side, talking to me too. Or am I a fool, who sits alone, talking to the moon? Oh. I know you're somewhere out there, somewhere far away. There's a fire starting in my heart. You're playing my fever pitch and bringing me out the dark. Finally, I can see you crystal clear. Go ahead and sell me out and I'll lay all my fears. See how I'll leave with every piece of you.
Don't underestimate the things that I will do. There's a fire starting in my heart. You're playing my fever pitch and bringing me out the dark. The scars of your love remind me of us. They keep me thinking that we almost had it all. The scars of your love, they leave me breathless. I can't help feeling. We could have had it all. You're gonna wish you never had met me. Trouble is a me. Trouble is a me. You had my heart inside of your hand. You're gonna wish you never had met me. You played it, thought it was meant to be. Baby, I have no story to be told. I've heard one on you, now I'm gonna make your head burn. Think of me in the depths of your despair. Making a home down there, as my soul holds you close.
The scars of your love remind me of us. They keep me thinking that we almost had it all. The scars of your love, they leave me breathless. I can't help feeling. We could have had it all. You're gonna wish you never had met me. Trouble is a me. Trouble is a me. You had my heart inside of your hand. You're gonna wish you never had met me. You played it, thought it was meant to be. We could have had it all. Trouble is a me. You had my heart inside of your hand. You played it, you played it, you played it, you played it to the beat. Calling you. I know you're the one I dream of. Look into my eyes
I can't seem to get enough. When I wake up from dreams, tell me, is it really my love? How will I know if you really love me? I say a prayer with every heartbeat. I fall in love whenever we meet. I'm asking if you know how deep is this? How will I know if you're thinking of me? I try so hard to decide. Is falling in love this home bittersweet? This love is yours like I feel. Oh, wake me, I'm shaking. Wish I had you near me now. There's a spark here mistaking. What I feel is really love. How will I know? How will I know? How will I know? How will I know? How will I know if you really love me? I say a prayer with every heartbeat. I fall in love whenever we meet.
I'm asking if you know how deep is this? How will I know if you're thinking of me? I try so hard to decide. Is falling in love this home bittersweet? This love is yours like I feel. If you love me not. If you love me not. If you love me. If you love me not.
You only need the light when it's burning low. Only miss the sun when it starts to snow. Only know you love her when you let her go. Only know you've been high when you're feeling low. Only hate the rose when you're missing thorns. Only know you love her when you let her go. When you let her go. Staring at the bottom of your glass. Hoping one day you'll make a dream last. Dreams come slow and they go so fast. You see her when you close your eyes. Maybe one day you'll understand why. Everything you touch surely dies. You only need the light when it's burning low. Only miss the sun when it starts to snow. Only know you love her when you let her go.
Hey, y'all. Let's go ahead and get started again. Yeah. If everybody could take their seats, we'll get started again. Okay. Okay, guys. Welcome back. Our next presenter is CEO of Southern Company Gas, Drew Evans.
Good morning. Thank you for returning. As Aaron said, my name is Drew Evans. I'm the President of Southern Company Gas. For those of you that I haven't had the chance to meet, I've been at AGL Resources, the predecessor of Southern Company Gas, for 15 years, and prior to that, actually spent 10 years in the Southern system. I'm a recycled Southern employee and very glad to be back. My goal today is to orient you, maybe some of you for the first time, on what Southern Company Gas is. I think it would probably be to my advantage to give you a little bit of background or backdrop in terms of the construction of the natural gas business in particular. Not a lot of detail, but just enough to be dangerous. The traditional natural gas business is simply broken down into 3 primary segments.
We've always talked about these things as upstream, midstream, and downstream. The upstream segment is the production segment, exploration and production, that probably has undergone the single largest change of anything in the energy industry. If you think about 2007 and 2008, natural gas prices were rising pretty drastically. Traditional production was inshore, offshore, deep water, and a relatively depleting resource. We always say in the gas business, nothing solves high prices like high prices. In the 2008-2009 sort of shale revolution, a very significant watershed change has occurred that has significant implications for both the midstream segment and the downstream segments that we operate. I would tell you, though, that it is not simply just an issue of fracking. It's actually a trio of technologies between hydraulic fracturing, micro seismic or 3D seismic, but also probably most importantly, directional drilling.
If you think about the footprint requirements of the exploration production business, they have decreased dramatically, the environmental impact of this activity is pretty significantly lessened. It's also led to what we have today, which is probably 50 or 100 years worth of reasonably priced natural gas supply. It's had some other implications too, though, because we've typically thought about natural gas coming from production areas in the Gulf of Mexico, maybe Rockies, moving into the market areas of New England and Mid-Atlantic. Because of the change in production to the Pennsylvania, Ohio areas, Marcellus and Utica shales, we're going to see a change in how that natural gas is piped into markets, hence our participation in PennEast, Atlantic Coast, Dalton, and some of the other projects, those three projects which I'll show you today.
It's also had a significant change from a customer perspective as well, our customer bills are virtually half of what they were in 2008, which gives us a really nice opportunity to modernize the underlying infrastructure that's in ground for that distribution business. This is not a new set of things in terms of customer safety. It's an opportunity for us to accelerate some of those programs so that we can do some replacement of bare steel, cast iron, and what we would call vintage plastics that were installed much of this pipeline pre-2000 and actually pre-1980s, pre-1990s. Today, the businesses that we operate, I won't talk about E&P because we're not in the production business. We do view that as moved from exploration principally to production and become a manufacturing process.
We leave that for a different set of investors and a different set of operators. Our principal businesses are in the midstream and downstream segments, in fact, our principal and core business is downstream delivery of natural gas to end-use customers. I'll spend most of my time talking about that today. For those of you who remember the legacy AGL Resources, we are still the largest operator of distribution businesses in the U.S. We serve 4.6 million customers, so in context, that's probably one out of every 15 meters in the U.S. is now a Southern Company Gas customer. Our rate mechanisms moved largely to Straight Fixed Variable rate design. That means that fixed cost recovery happens in a base charge, then natural gas is a pass-through.
That's an interesting feature, an important feature from our perspective, because it means we have an incentive for conservation in our industry, we talk much less about total retail sales to customers and worry more about number of connected customers or modernization of the underlying infrastructure. As I said, because we talked about lack of sales growth over two or three decades in the business, it was a very logical extension for regulators to move to Straight Fixed Variable rate design. If you think about the composition of our bill to a typical customer, depending on the geography, the fixed portion of that bill may only be 20% of what the customer is.
The fixed charge may represent only about the total charges to those customers and still leaves us with a pretty significant opportunity to invest in infrastructure without a really material impact on our customer base. We operate in seven jurisdictions. The two largest certainly are Illinois and Georgia. We view all of our regulatory jurisdictions as being highly constructive, and we've enjoyed very good rate making and very good opportunity in each of our states. We think what follows from this is just a really nice, sustainable period of capital investment, and we anticipate growing our rate base, almost doubling our rate base in the next seven or eight years. You can see the relative size of each of these in contribution. Let me talk about the investment.
We will invest somewhere in the neighborhood of $1 billion worth of CapEx in the totality of our distribution companies over the next 5-10 years. About 80% of the capital deployment that we'll do over the rate of depreciation will occur in a rider-based program. These are not new concepts, and in fact, I would tell you that Georgia has been a very progressive and constructive jurisdiction in particular. Paul enjoys this in our state as well. Their goal 20 years ago was to remove all of the bare steel and cast iron out of the Georgia system. These are 1950s, 1960s technologies that are much more prone to leak, and so we have environmental and safety implications to having this type of pipe in our system.
In Georgia, over a 12-year period, we were able to completely replace and remove all of the bare steel and cast iron. That happened in an era prior to gas prices being as low as they are today, and so a very difficult leap for that state to take. We're now seeing, though, the same constructive mechanisms put in place in each of our jurisdictions, and I'd point you in particular into Nicor Gas, where we've got investing in Illinois, which is a very protective and productive project that will undergo from now until 2023 to remove, in that jurisdiction, principally bare steel. Atlanta Gas Light will see multiple programs over the next decade or so where we'll remove vintage plastics material called Aldyl A, which was put in in the '70s, that has embrittlement issues and really deserves a more modern plastic in its place.
In Elizabethtown Gas, we've proposed a smart program. This is our New Jersey jurisdiction where we'll remove the bare steel, principally cast iron in that jurisdiction, and we believe that program could run through 2027. All of these programs are founded in customer safety, certainly in modernization of the system, and we think a rider-based mechanism is the most constructive way to do it. We will have certain constructions, and even some of these, the smart program today is just proposed. Even some of these may have to move into a more normalized rate cycle. Today, this is probably the best way for modernization. These are not finite. I would tell you that of our 80,000 miles of pipeline that we operate today, about 1,500 miles of that system are still bare steel and cast iron. We'd like to see those generations of pipe removed first.
I would tell you that Aldyl A, the vintage plastics represent about another 3,000 miles on top of that and are just starting to get dealt with in these programs, principally in Georgia. A significant amount of opportunity, we think, for a pretty decent duration. We've entered into one of our first rate cases in a number of years. That's Elizabethtown Gas, and that's a filing that's outstanding. We're looking for a $19 million rate increase there related principally to a pipeline that was put in service in that jurisdiction. We've been very good about combating inflations in our business, and today still operate one of the most efficient gas distributions in the U.S. We measure in O&M per customer, and our O&M per customer tends to be in the $150-$175 per customer range, so very efficient if you look across the utility industry.
For LDCs, these are our four principal areas of focus: safety, reliability, and customer satisfaction, just like in the power business, is essential. Having constructive regulatory relationships leads to constructive regulatory mechanisms. We're focused in all seven states in a constructive way. Our number one goal is to minimize the lag in capital deployment, and one of the things that we think we'll see is some maintenance of ROE in the 10% range over the long term. This is the LDC business in total. The second major segment that we operate today, and it's become a much larger segment because of the inclusion of Sonat, is the gas midstream business, and this includes both interstate pipelines and underground gas storages. We find that pipelines tend to enjoy slightly higher ROEs. These are FERC-regulated assets, and returns tend to be in the 11%-12% range.
We've focused our investments principally in areas where we serve customers, if you think about Sonat, as Tom described it, between the two legacy companies, we represent more than half of the total transportation on the Sonat system in any given year. It makes sense for us to own and operate that system for the benefit of our customer base. As we re-pipe Marcellus and Utica shale gases into our other service territories, we're also going to embark on some constructions through partnerships, but these are all done on a demand-driven basis. Unlike some of the pipeline investments that you'll see announced today, which are producer push, we're focused on areas where we're a good portion of the demand, and in general, our ownerships reflect the amount of gas that we'll be shipping on that pipe for quite some time to come.
We're doing three constructions today. Dalton has begun, has received FERC certificate, and it's begun construction. It's a movement of gas from the Transco system up into the northern portions of our distribution territory in Georgia. It allows us to access Marcellus gas as we see displacement down the Transco line. Atlantic Coast is a partnership with a number of large utilities moving gas into the Virginia area. That construction will commence probably in the next year or so and with commercial delivery sometime in 2019. It's a much larger pipe, and we're a 5% owner of it now, along with Dominion and Duke. PennEast is a pipeline that will serve our franchises in the New Jersey area, and it's a collection of really nice LDCs in that region, principally New Jersey Resources, South Jersey Industries, and the like.
Again, really focusing on the demand pull rather than producer push investments. It's important to note, as this slide does, that 90% of that capacity is under contract with investment-grade counterparties. Our intent is not to invest in speculative pipe construction, not to focus on producer push, and really focus on pull. We've got a placeholder in here, and certainly it's in our business plan. There are a number of things that can represent, whether it's an expansion of the Sonat system or constructions related to the Sonat system that would support the power generation interests of Southern. We do think that probably shale gas needs to play a larger role in supply in Illinois, and there are a number of opportunities there where we might see some enhancement of systems or some minor constructions that would do it.
A number of things we think probably fit into this placeholder, but wanted to make sure we reserved capital appropriately to do some expansion. Finally, we've got a third segment, which is gas marketing services, and Tom alluded to this. This is also a downstream segment. Its principal business is the delivery of natural gas or retail sale of natural gas. As many of you know, Georgia, as a system, completely unbundled and separated distribution from the sale to customers in 1998. We've been a major participant in that market and have garnered about 30% market share. As Tom said, it's been a competitive business over that 14 or 15-year period, but we've seen very stable earnings out of retail sales in Georgia. We're also selling gas in Illinois as well because of our participations there with the franchise at Nicor.
That business was supplemented when we purchased Nicor in 2011 with a services business. That services business is a warranty services company that helps customers make better choices when they're having to make choices in their homes around their equipment and efficiency. Both of these, we think can be exploited pretty nicely within the Southern system in total and businesses that we'll focus on. We would say that the characteristic of these is much more annuity-like. Our growth is going to be driven largely by capital investment. There's no question about it. This gives you a better sense of where the total deployment will be over the next five years at least. Our run rate in the utilities will be about $1 billion a year.
We think there's some persistency to that need, and as I said, the vast majority of it is under rider-based programs. We'll also have the constructions for the three pipelines that we talked about, Dalton, PennEast, and Atlantic Coast. I think that brings a good set of diversity to that capital investment in total. No single project represents any concern for concentration, and we hope to find things in the 2020, 2021 timeframe that will supplement to that. As I said, we'll likely see some logical extensions of some of the pipeline replacements that we're doing today. All of this leads to what we view as very stable, predictable, and diversified earnings growth. If you look at the composition of our growth expectations, and we do have very high expectations for our growth, our range here is eight to 10. Tom talked about 10 this morning.
Certainly, a growth rate that we are very comfortable about given the investments that we have to make. No single piece of that growth shows concentration. Of the 54% that'll come out of distribution, some portion of that will be rate case related, but the vast majority of it is going to be rider based. Highly contracted midstream pipes are about a third of that total growth rate. The biggest driver there will be the finalization of Atlantic Coast, certainly PennEast, and the completion of Dalton, which will occur over the next 12-18 months. Finally, gas marketing services. We've seen 3%-4% growth in that business over a 10-12-year timeframe. We continue to have an expectation in that range here.
We'll take questions at the end, but I think we've left you with the highlights, which is we represent a very interesting growth vehicle, I think, within Southern. Southern had interest in acquiring gas. I always say that Tom is one of the few executives that doesn't stand with his arms crossed in front of the coal pile. I think he's been very progressive in looking at the energy needs and demands of the customer base, and we represent a very logical addition to what is the powerhouse of Southern Company, and we're very pleased to be part of the family again. With that, I'll turn it over to Buzz Miller at Southern Power. Thank you.
All right. Good morning. I am Buzz Miller, for those that don't know me, and I'm very fortunate to be leading Southern Power right now. It's a very exciting time for us. The first thing I want to do is take us through a little bit of history of Southern Power. A lot of this is just re-emphasizing what Tom was saying in his opening presentation. After the spin of Mirant in early 2000, Southern Power was established, and it was established very simply, as you see and you've heard. Low risk, long-term contracts, creditworthy counterparties, minimal fuel risk, transmission risk. Back in that time period, gas was just emerging as a dominant solution, and our focus was on the super Southeast. That's where we did business for basically the first decade. Nearing the end of that decade, renewables were emerging as a dominant solution.
Company took a hard look. You had solar, you had wind. At that time, our basis of looking at things was that utility-scale solar was really a match for what I just said for our business model. The ability to go and get long-term contracts, creditworthy counterparties, and obviously, a low fuel risk there on solar. Thinking that someday we'd use it in the Southeast, the first projects were out West. We had partnerships with Ted Turner's group at Cimarron. We've continued that partnership today. We've expanded to other partners as we got beyond that five-year period. You can see in 2016 we had a huge amount of growth into 2015 and 2016. We've expanded the solar partners we have. We've got multiple going on now. We've gotten into wind now.
Likewise, we are working with wind partners and expanding our list of partners that we work there. We have a very diverse portfolio. Overall now, Southern Power has over 12,000 megawatts of capacity. Still, 75% of our portfolio is natural gas, but on an investment-weighted basis, most of our investment is on the renewable side. All of that is with strong contracts, strong counterparties. This slide emphasizes our contract coverage on average is about 17 years right now for all of our portfolio. Our investment-weighted coverage at 10-year contract length is greater than 90%. You can see the strength of our counterparties as we continue to stick to what we said we are going to do and execute our business. With the growing megawatts comes the realization that we are a large operating company.
With more than 12,000 megawatts, it is important that we operate and maintain our assets with the same excellent fashion the retail business has done for years. We have a fantastic operating. Tom talked about our gas fleet. Southern Power's gas fleet, we are predominantly GE. GE's best-performing fleet, I believe, worldwide. We have a fabulous safety record. We have had zero recordable injuries at Southern Power in the past three years. Implementing the renewables, our solar and wind is performing as expected as we evaluated it. I will tell you, this will be key going forward because we have to keep delivering on this for the energy margins as we go forward. Looking forward, you break down our business into solar, wind, gas right now. Going forward, solar is going to be a little more difficult to do.
The impacts of the market, PPA prices are driving down. Solar panels are getting pretty much dumped across the market. You combine the low PPA prices, you combine that with our tax position, and solar right now is likely not going to be something we pursue a lot of. If there is a project that meets our requirements for an investment, we would certainly do that. We begin the pivot to wind that Tom has talked about a lot. We expect that to continue. We did that in a big way this year. We will continue with that going forward. They have a much more attractive financial profile for us, the way PTCs play out. We are looking much like we did on the solar. We are working with wind developers, but also the turbine suppliers to see what sort of strategic partnerships we can have.
Many of you know that on the wind side of the thing, there is a safe harbor provision. We can get the tax credits going forward. We are working with turbine suppliers now to make sure we position ourselves going forward the best way possible for investment. You know we invested in Mankato in Minnesota gas plant. As we move forward the next several years, acquisitions are likely what we are able to do on the gas side. As the Clean Power Plan kicks in, we talked about, as other environmental issues kick in, maybe new build comes back into the equation. For right now, it looks like gas acquisitions.
The purpose of this slide really is to tell you if you combine our business model, if we want creditworthy counterparties, we want long-term contracts, and we're pivoting toward wind and gas acquisition, it pretty much directs you to the center of the country and to the west. That's where most of our business will be in the upcoming years. What does this mean going forward for us? Tom mentioned the huge growth in capital investment, $4.4 billion this year. I'll point out that a good chunk of that goes toward projects that come in at the end of the year and help serve us in 2017 and beyond. Going forward to meet our growth requirements for income and to keep our credit metrics in line and all included, it's about a billion and a half dollars we've targeted going forward for the next five years.
What that means to Southern Power net income, we are leveling out. You can see from 2016 to 2017, a leveling out. I'll point out that in 2016, a lot of that is ITC impacts on net income. We go to 2017, ITC impacts drop off drastically, we stay at a level income profile, and that is basically from operating our existing assets right there. We expect about a 12% cumulative growth rate for the next five years. In 2021, looking at about $500 million net income for Southern Power. Overall, our goal is to stay in that 10%-15% range of percent of Southern Company income, and we think we can do that. We'll execute on that, as I said. With that, I turn it over to Art Beattie.
Thank you, Buzz. Good morning. I want to thank you all again for being here today. I know it's a bit of your time, and I appreciate you listening to our story. I know it was probably 30 seconds after you either looked at our materials online or after you picked up your book, you looked through my slides, you know everything I'm going to tell you, that's okay. It's going to be a little anticlimactic for you, that's the way it is. My job today is to try to mop up, make a story out of what you've heard today. I feel a little bit like the guy with the broom behind the parade, pushing and making sure all the loose ends are tied up.
You heard Tom talk about this morning the overarching strategy of Southern and how with our addition of Southern Gas with the Southern Natural Gas pipeline, our success at Southern Power, the things that we're doing in our electric operating companies, and even the addition of PowerSecure, are all going to lengthening and strengthening our earnings profile for the future. It will actually diversify our risk profile at the same time. He talked about greater than 95% of income in 2021 is expected to come from the state-regulated electric and gas utilities, our long-term contracted businesses. That's who Southern is. Our stripes have not changed. We are still the same company we have always been. We're a little broader, we're a little deeper, the same story is going to help support our regular, predictable, sustainable earnings growth as we move into the future.
We think that's what our plan reflects today. We are going to start today with a quick review of quarterly earnings. We reported this morning as-reported earnings of $1.18 compared to $1.05 in the third quarter of 2015, a pickup of $0.13 on an as-reported basis. Year-to-date, $2.39 against $2.30, a pickup of $0.09 on an as-reported basis. If we exclude all the extraordinary items and we exclude the other items that actually get us to be consistent with what we guided to this year, we earned $1.28 on the quarter versus $1.17 last year, a pickup of $0.11. We earned $2.64 on a year-to-date basis compared to $2.45 a year ago. We've had an excellent quarter, and I'm sure that you'll want to know the drivers here.
A lot of the drivers in the quarter were weather and other revenue effects at our traditional operating companies. Southern Power was certainly a piece of that pie as well, adding $0.08 year-over-year. Offset by financings to support that growth that we've incurred this year. As we normally do in the third quarter, we give you guidance for the remainder of 2016. Our guidance is pretty simple. We expect to be at the very top end of our range. For those of you who want to do the math, that's about $0.24 a share is what we expect to earn in our fourth quarter. Obviously, excluding everything that's listed at the bottom of that slide. When we build a financial plan at Southern, these are some of the financial objectives that we include.
Obviously, our ultimate objective is to produce a superior risk-adjusted return for shareholders. We also pay attention to our financial integrity. That's a stake in the ground that we put. We look to be able to produce strong returns on our invested capital in each of our companies. We're obviously looking for regular, predictable, sustainable earnings and dividend growth over the time frame. I think that you'll see our 2017 plan actually supports all of these elements as we move forward. Our plan certainly includes a healthy level of CapEx. These are the summations of all the numbers that you've heard by business unit this morning. It's about $25 billion over three years, about $39 billion over five years. The vast majority of it going into the electric business, basically new generation, transmission distribution, and environmental projects.
You heard Buzz talk about his investments at Southern Power, a billion and a half a year going into wind, gas, and possibly more solar. You've heard Drew talk about the investments in Southern Gas and pipe replacement programs in the various jurisdictions. We've got a very healthy capital budget that helps support the growth rate of our earnings over time. I'll remind you again that none of this includes anything for Clean Power Plan. There are no capital expenditures in there whatsoever. Our financing program supports the capital program. We're going to raise about $10.5 billion of net financings over the next five years. You can see the slide there. We actually have a little bit of equity in there, about a billion and a half of equity and about $9 billion in debt over that timeframe.
As a reminder, we still have a little bit of equity to issue this year. We expect to issue another $550 million of equity to help support a contribution to our pension plans to help our funding ratios in that regard. As our capital plans will change, certainly we'll reflect that in our financing programs, but you can believe that we'll pay attention to the same drivers around financial integrity as we do so. Our FFO to debt over the time frame is greater than 16%, so we feel very good about the support around the debt program and our financial integrity. What we've raised or expect to raise in the next five years actually pales in comparison to what we've actually done this year. By the end of this year, Southern will have raised nearly $20 billion in both the debt and equity capital markets.
It's been a fantastic year for us. These are just tombstones that list some of the things. I will call to mind some of the diversity that we've put into place. The utilization of green bonds at Georgia Power, Southern Power. We've issued retail hybrids, and we've done all of this to create room for the $8.5 billion debt deal that we did in May of this year to help raise funds for the consummation of the Southern Gas transaction. We've had a great year. If we look at the amount of money that we've raised so far this year, in debt markets, it's been almost $15 billion, average rate 2.8%, average life about 15 years. It's been very low-cost capital, and that helps support the profile that we continue to have.
Southern Company, we talked earlier, $41 billion of debt outstanding, average life of 16 years, average rate 3.9%. That does two things. Certainly helps keeps customers' rates low, it also helps support our long-term strengthen and lengthen proposition around earnings. When we talk about earnings and earnings guidance, Tom mentioned it this morning, we've always been very palms up about what we tell you based on the circumstances that we see. We did so around bonus depreciation. We did so when we saw our capital program beginning to flatten out. We've always been that way. With that in mind, I'll take you back to the time we announced the AGL transaction. We basically stated that we would raise our growth rate from 3%-4%, to 4%-5%.
As we move into 2017, as Tom has already hinted to you, we're going to raise our growth rate from 4%-5%, to 5%. That produces an earnings guidance range of $290-$302 for next year. On the strength of everything that we have chatted about, we believe we have a trajectory that supports a longer pathway to growth around that 5%. There'll certainly be variations around that five, we think the 5% growth is what best describes our opportunity, given the circumstances that we see in front of us. Our plan also includes something from the dividend perspective. When we announced the AGL transaction, we basically also stated that we thought we could raise the annual increase in the dividend from $0.07 a year to $0.08 a year, our plan includes the actual increase in that dividend.
Even with the increase in the dividend rate, our ability to cover that from a cash flow perspective has improved about 15% from the prior 15 years that we have seen. From 2002 to 2016, our cash flow coverage of dividends has increased by 15%. I also think it's important to remember that 95% of this dividend is covered by the businesses that we've described this morning. State-regulated electric and gas utilities, and long-term contracted business models all go to support the dividend that we'll pay over the next five years. This particular slide helps to break it down for you. The slide on the left actually are the contributions by company or by segment towards the 5% growth rate.
I also think it's important to remember, at least on the right side of this chart, that the companies who are supporting their dividends are basically on the right side. The traditional opcos will support basically two-thirds of the dividend, while the other companies, Southern Power, Southern Gas, and all of our companies, will support the other one-third of the dividend. 95%, again, supported by those definitions that I mentioned earlier. To sum it up, I think we've got a very strong and resilient plan. We've provided for increase in earnings growth. We've provided for an increase in dividend growth. We've paid very close attention to our financial integrity. We've given you a lengthened outlook. Rather than three years, we've gone out to five years. We think from a risk perspective, we're actually in very good shape. We've diversified our jurisdictions.
We've had recent success on our major projects.
We feel very good about where we are from a risk perspective. We think it strongly supports our regular, predictable, sustainable business prospects for our investors and providing for a superior risk-adjusted return for those same investors. With that, I'll turn it back to Tom.
Well done. Summary slide.
Summary slide?
Yeah.
I got a slide. Yeah. It's really just the notion that we have added Anything else? Yeah, there we go. There we are. While we've been exceedingly hyperactive in 2016, we have added stuff that hangs together from a logic standpoint. The strategy, I think, is clear. This energy infrastructure business that we are in, as you have heard, regular, predictable, sustainable, all that stuff. You look at it and you go, "Got it." Makes sense. Transparent. If anything, we've improved growth, we've reduced risk. We're moving forward. I think that business is terrific. When you look at our business model, there's very little kind of new, big placeholders in order to achieve. We really do have this now. There's risk around it, I admit it. That business model works. I'm very proud of it. Questions? How's that for a quick slide? Questions? Yes, sir.
No, you're holding the mic. You got a question? No? Questions? Come on.
Go.
Greg Gordon.
Greg Gordon.
He's right there in front of you. Oh, well.
He can take him first. It's okay. There you go.
Hey, how are you?
No.
No, I don't care.
Okay.
Julien, let's go ahead.
There we go. All right. Would you mind saying your name?
Yeah, of course. Julien Dumoulin-Smith, UBS. Thanks again. Appreciate it all.
Thank you.
The details, excellent. Perhaps just to kick it off on the Southern Power side, to kind of rewind on the presentation a little bit. What kinds of ROEs? Is there a good rule of thumb that we should be thinking about when you look at that capital plan and translating back to the earnings growth? Now, I know you guys provide a 12% earnings CAGR there. You can back into it, but I'd like to hear it from you guys, how you think about ROE or earnings.
In round numbers.
Yeah
you should add about 100 basis points onto it as compared to an integrated regulated return.
Say if you take your 12% earned ROE at the utility, for instance, you would say a 13% earned
That would be adding 100 basis points. Yes, that's correct.
Okay.
It does depend. There's a slide in the appendix, I believe behind Buzz's slides that I think gives you an idea about contract length, because whatever your IRR might be, it's going to be a function of contract length, how long it is. Longer term contracts will have lower IRRs, shorter contracts will have higher IRRs.
Yeah.
So-
Every project has a unique
Yeah
hurdle rate.
Don't go in thinking that it's one number up front.
Yeah.
It's always different.
I'm giving you for the portfolio. It's about 100 basis points ROE as compared to the traditional electric utility business. Got it. That's an ROE, not an IRR?
Yes.
Okay. Just double checking.
That's an ROE.
Sorry. I'll stick with the same subject.
Sure, man.
Looking at year-over-year puts and takes, right, 2016, 2017 onwards, given the roll-off in the solar ITCs, I know we've talked about it before.
Right.
Where do we stand today in terms of that ITC roll-off, 2016, 2017, and how do we think about the earnings contributions? Is that a good flat line number in 2017 going forward in terms of ITC-
Just what Buzz showed you. It would be somewhere, we think Southern Power is going to be somewhere between what? $300 million-$330 million. Where'd Buzz go? Yeah. Right?
ITCs were about half modeling.
Remember what we told you at other earnings calls. When we showed this enormous growth in 2016 CapEx as four and a half, $4.4 billion, it's big numbers. We said a lot of that is dedicated to 2017. That's what you're seeing. That's why we don't have the dividend anymore.
Right. Just said differently, that's a good stable flat line number off of which to grow.
Exactly.
Okay.
In fact, when you look at the growth of Southern Power that we expected, this $1.5 billion deployment every year, it's a nice ratable increase. We've worked very hard to make this thing in the fashion that we build into our business model.
Right.
In fact, both our businesses are. Southern Gas is the same way. If you really want to think about caveman kind of math, you've got a slug of capital that's a growth business there and a slug of capital that's a growth business there, that's the way it works.
Got it. One last higher level question for you.
Yes, sir.
More for Tom. As you think about, you kind of effectively narrowed your growth range to the top end, right? I'm just curious, how do you think about the risk reduction of the business profile, right, in tandem with that, right? I suppose the question that comes to my mind is, I suppose you've got some wood to chop in Mississippi, for instance, next year, et cetera. How do you think about all the various risks that go into that to narrow the range ultimately?
Right now, Anthony Wilson, where are you? Anthony, right there, CEO of Mississippi Power. He can talk to you a little bit. We've already started some conversations, okay? Remember our relationship with virtually everybody we touch is kind of real, not discrete. It's continuous. We've already started. I don't want to front run a lot of stuff. I would argue that this plan, and I almost liken it to women's gymnastics and the balance beam. It's kind of hard to knock this plan off the balance beam. I think this plan is robust to reasonable outcomes. Wait, let's get Greg, and then Ali, we'll come to you
Thanks. Just a quick follow-up on that, then the second question. At a high level, there's increasing competition for these types of lower risk, long-term contracted types of deals, right? You're in their business now. Dominion's there, Duke's there, Con Ed's there. NextEra's been there for years. Avangrid's there. What competitive advantage are you bringing to the table that you're able to execute these deals at hurdle rates that look competitive when we hear anecdotal evidence all the time that the equity IRRs on these things are getting compressed pretty fast?
Well, it's simple. The best example I'm going to use is First Solar. When we think about us starting, I was just telling Fleishman about this. When we started solar, we're actually very careful. We're almost pedantic sometimes. We don't rush and do fads and all this stuff. When we started down the solar effort, we started in conjunction with Ted Turner, and we started developing relationships all over, and we held an internal solar summit, and we studied, and we studied. Finally, when we saw execution start to occur in the kind of vein that we enjoy, we started to move quickly and at scale.
We developed a relationship with First Solar, where not only did we have kind of the relationship where they would develop and we would step into operation, we also worked with them steadily on improving their development of power sales contracts, and permitting, and transmission. We actually coached up, worked with the folks that we developed significant relationships. First Solar has borne fruit for us, there's others. We're doing the same with wind right now. If you have the advantage of having scale and of having an intimate understanding as to what it takes to step into a deal, the developers are going to be much more successful, much more efficient, and effective in what they do. We believe developing those relationships, it's where I started the slide. That does matter. This is not a company run by a spreadsheet.
You can't do that business with a spreadsheet. You're going to end up with 1 million different contracts with no idea as to how to administer them. We believe in risk management before we step into the contract. We think that who are your big kind of wind guys going forward? Where are the big relationships you're working on?
We started with Apex end of last year, and we've done another deal with them. Invenergy, we just announced a deal with. We have another wind partner that we haven't announced yet, but before the end of the year, a couple more wind projects with another partner.
Point there is we're not everything to everybody. Especially, we go to scale. We go to people that we can repeat a business model, particularly focused on the quality of the power sales contracts and the permitting.
The second question, switching gears.
Oh, okay
is to Mississippi Power and Kemper. You said that you're optimistic you'll be moving to commercial operation there. Can you tell us what the discrete steps are from here to there? When you file the rate case next year, can you just explain to us what your baseline assumption is in terms of outcomes? It's a little bit complex because you have wholesale rate base, retail rate base.
Yeah
stuff that was put back to you.
Well, I don't want to.
Can you comment on that?
Let me give you the steps in terms of I don't want to front-run any rate case, okay? We're going to file a rate case. When we file it, we'll describe it to you. Before we file it, I really don't want to go there, Greg. I will tell you the steps, though. They're really pretty clear. Our estimate, as we disclose, our best estimate of COD in service is the end of November. We're producing electricity out of A. B comes online. We think we've learned a lot in A. We'll move B through the acid gas cleanup system, deliver syngas to the turbines. The turbines are actually running great on syngas, and actually, we blended it. We've run it 100% syngas. We're doing all sorts of testing right now, so it's really going well. Our best belief is November 30th.
I mean, it could slide a week or two or whatever, but the unknowns unknowns is what we've always said to you. Assuming everything works, our best guess is November 30th. Close on, we will file essentially an accounting order that'll allow us to defer costs from COD to final rates in place. Okay? We will defer costs and essentially create an accounting order. We'll do that with the commission. Then we want to demonstrate, unlike some other kind of circumstances, we actually want to demonstrate performance on this unit, on these units, so that when we do file and when we finally get an outcome, we can show that this thing works. Used and useful, I think, is really important, and I think we're going to be able to demonstrate that.
Thank you.
That's about all I want to go into. I don't want to front-run the rate case, but whoever. Ali.
Ali Agha, SunTrust. Tom, two questions. First, when I look at your CapEx forecast through 2021, it comes down in the last few years. Is it fair to say that the 5% EPS growth there kind of follows that pattern, so it's more front-end loaded and then slows down in the last couple of years?
It's really pretty ratable over time. That's what gives us great confidence about this. It's about a 5% growth rate all the way through.
Okay. Okay.
Here's what's interesting about that growth rate when you look at that CapEx. Recall, remember what I used to say about the flattening EPS growth rate? Remember there was the divot I talked about? All that's gone. We've eliminated the divot. We've moved the curve up. By investing in a growth business in gas and a growth business in Southern Power. We have an annuity essentially in Sonat, and we have growth opportunities on top of that. Anything material beyond what we're saying isn't in this plan. In other words, no response to the Clean Power Plan in here.
Mm-hmm. Yeah.
That's amazing stuff. No kind of big assessment on some brand new environmental regulation which could occur depending on what administration comes in. We've got Southern Power at a billion and a half. We just did a $4.5 billion. I actually feel good about where we are, and I wouldn't interpret the slowing growth of the CapEx as anything other than the absence of a response to the Clean Power Plan. Wouldn't surprise me at all that in the future, 2021, who knows that we have a Clean Power Plan and that we're going to have to start adding some gas, particularly in response to that. It's not in the plan.
Okay. My second question. 2016 was a very active year for you in terms of acquisitions.
Yep.
As you plan your outlook through 2021, are acquisitions contemplated? You look at the state of the industry, you expect more consolidation. Is Southern a player, or are you just staying out of that and just executing on your current portfolio?
I've answered the M&A question, seems like for 100 years, right? The M&A question remains the same. What's fun about this plan is it doesn't depend on anything like that. As we have said before, we're a big EVA shop, and in order for us to do any sort of acquisition, it's got to make sense from cost to capital and return on capital. This plan doesn't need anything new. We have suggested, and around the Sonat acquisition, there are specific assets that we're considering. We'll see how that goes. We haven't really talked about that much ourselves. That's not an enormous, big deal. It's at least a size that we think is easily digestible, and if it doesn't happen, we're still okay. In terms of other new deals, I think all we've done when you look at that map is we've created optionality.
We are no more or less interested in M&A than we were before. When you think about 2016, it looks like there was a flurry of activity. It just so happened the opportunities ripened and bam, there they were. The one little bit of a quick mover was AGL. The pipeline, heck, I've been talking about that for about two years. Really it was interesting. We could have continued on that course. When AGL happened, that gave us even a better set of cards in which to deal with pipeline transactions, because now we move from the third or fourth largest consumer of natural gas now to the most important natural gas company in the U.S., I think. PowerSecure was another one. This PowerSecure, again, was not material in my sense except it was strategically important.
When we started again looking at these kind of slowing and flagging sales of electricity, we could either just let it happen or try and play offense. I swear to you, I think our business model will make perfect sense on the customer premises. Customers don't want to get involved in our business. We think there is terrific capital deployment opportunities by marrying what these guys do with our customer reach. When we did AGL, now Southern Company Gas, we doubled our customer reach. Now we're not four and a half, we're nine million. They procure natural gas. You know what? Bloom uses natural gas, doesn't it? You have Southern Power, you have synergy with gas, and then you have the reputation of financial integrity of Southern Company. Our chain accounts reach.
There is tremendous synergy potential. PowerSecure is no big bet right now. It is a terrifically valuable option. Yeah, Andy.
Hi, good morning. It's Andy Levi from Avon Capital. Just on the gas side, the 8%-10% growth rate that you put out there, that's earnings per share or net income or-
I think net income
net income. Can we just break that down a little bit, like for Sonat, kind of where the starting point is on net income and how much that could grow on an annual basis? Then for AGL, does that growth rate and net income also include cost synergies from the Georgia operations or just in general in that 8%-10% growth rate?
Let me hit the easy, simple answer. I'll give you a hard one.
I don't want to double count the cost savings.
Yeah. Remember I described Sonat as an annuity. What it looks like. Remember I said it's an annuity that has an option for future growth. That's how I alluded to Sonat. Most of the otherwise intrinsic growth is coming out of safety-related pipeline replacement program.
Yeah, Andy, it's like [inaudible] . It's all in there, okay. To the degree that they get any cost savings from the merger, they could fall between Georgia Power and really Atlanta Gas Light or Southern Gas in Georgia. That's where the only opportunity is where we have any overlap. To the degree Georgia Power gets those savings or Southern Gas gets those savings, those are reflected in those numbers. I can't give you any specific number there because we're still under process for determining what those could be.
Can you talk about the level of cost savings, even if it's on a broad level, how much we should be incorporating over the next two to three years? Sonat, what is the starting point on net income?
I'm sorry?
For Sonat, what is the starting point on net income?
I think either Mark Lantrip can talk more ratably about the potential savings here, or even Ron Henson.
The savings, yeah. The savings that we expect to get from the merger for AGL are baked into the numbers. Now, we're midway, I'd say we're about a third of the way through the integration process. It'll run through 2018. We're just now beginning to work through some of the integration issues around the systems. We are integrating as much as we can operationally. Realize it's a gas company, it's not an electric company, so you don't have the same benefits that you would have by bringing in the same kind of operational characteristics. There are some in Georgia, and we're going through and harvesting those right now and figuring out how to do those things better and do them jointly.
There's really two levels of synergies. One is just the straight old cost-related synergies.
Right.
Mark, those are going as expected or a wee bit better. The second is top-line synergies, and those are going a little bit better.
That's right.
When I think about Bloom and other things. Yeah.
I don't remember the number on that. Does that sound about right?
A little less than that.
Shouldn't have answered as the acquirer, but I'll maybe table it this way, the serial acquirer of LDCs. Simply a way to offset general inflationary pressures that business. Looking at it from my perspective, this is more about investing in the business.
Yeah.
Not like a different electric company where you're a fuel synergy. This is really about better balances.
Yeah, that's right. I mean, most of the synergies for AGL and Southern will be in the shared services really on things like IT, some HR, some accounting stuff. Beyond that, there'll be some small synergies in the Georgia territories.
All right, thanks. Yeah, Paul, we'll get you next, after this one.
Tom Art, thank you for taking the question and hosting the day. Michael Lapides of Goldman here. You've given pretty robust net income guidance for Southern Power and Southern Gas. Just kind of back of the envelope math would imply, given your 5% overall EPS growth, pretty low growth at the electric utilities. Can you just talk about how you expect EPS growth and rate-based growth at the electric subsidiaries, what you're formally expecting for both as a percentage growth rate? Do you think rate-based growth and EPS growth move in lockstep with each other? Are there any differentiation there, and if so, why?
Yeah. You want to?
Yeah, rate-based growth I believe is certainly going to be lower. Obviously, you're going to quit adding or you're going to complete the Vogtle projects by 2019 and 2020, the curve on that goes down. The other items in the budget would be normal transmission distribution maintenance, project improvements for customer service around that. The additional environmental projects, most of that related to ash ponds, is included in there. Some of those are still preliminary in terms of their estimates. It reflects what we know today in terms of those dollars. Those could move around a bit, but that's really where their growth rate is coming from in the electric OPCOs.
What they're trying to do is to offset that capital program they've put in place in the electric operating companies, to mitigate that with cost controls so that they can hold the price down to customers at a reasonable level at or below inflation.
It is pretty clear the operating numbers are going at a much slower rate. I mean, the math is really pretty simple if you back into the math. They are growing slower. Now, what is absent is this response to the Clean Power Plan. Pretty clear to me that the generation portfolio of America will change, and we'll just see how that goes. I don't want to front-run how that's going to happen, certainly not in front of this political season. There again, if you start seeing things like gas generation showing up in the 2020s to displace otherwise either eroding or slow-growing base load or CTs necessary to meet intermittency, it appears to me gas is going to have to grow. That's not in the plan. Yeah, Paul.
Paul Patterson.
Oh.
I wanted to ask you about Kemper. One of the commissioners in Mississippi is asking whether it might dispatch or not. Production costs look like they're higher and what have you. Can you give us a flavor for what you think the production costs, just pure production cost for syngas will be? Then number 2, you mentioned having a demonstration for use and useful. It seems like there's a substantial ramp. When should we think about that? What's your plan in terms of being able to show that that's used and useful? What time, I guess.
Look, I think as we've moved through the startup process, as we knock over these dominoes that you'd normally expect through the startup process, the thing has moved beautifully. Like for example, when A went through the acid gas cleanout system, remember that was one of the big issues. Boom, went through it right away, went through it first time. Look, I think we're going to be able to demonstrate used and useful very easily. This plant's going to work. It is working. So now we get B on and we integrate her. Remember what we always said, the first thing? It hasn't been as much of an issue. Remember we talked about, this is years ago, about how one of the big risks we saw in this plant was the integration of a whole lot of different systems. Remember it was combined cycle at three different systems.
This one has something like 14. Okay? They're being integrated. Actually, that's gone better than expected. I think the used and useful question is going to be demonstrated in between COD and when we file the rate case and actually through the rate case. It'll continue to improve its performance, I think, pretty dramatically over the year. We'll be able to demonstrate that. During that timeframe. I think we'll be able to demonstrate that. I think we file data around availability and other things. Kim could tell you more about that. If you want, look at the filing we just made. You made an informational filing, Anthony, here a couple of weeks ago. We'll be able to demonstrate that. With respect to the energy, the energy is variable, and it depends on a whole host of factors including the offtake of what CO2 valued at.
Remember that's valued at index to the price of oil. I think in the past, on other earnings calls, and I don't see any reason why this has changed, but at $100 a barrel, that's when this thing was ordered, I think we produced energy in the low $1, $1.25 or something like that. With oil at around $50, I seem to remember, it was about $260, $270 per million BTU. Here's the other thing. The energy that comes off of Kemper is going to be much more stable. It's not going to be as volatile as natural gas. We've already seen natural gas pop up. What's the latest? 310,
Actually below 3 today as it's passing.
Yeah. You tell me. There's a host of factors going forward.
Hey, Tom. Steve Fleishman. Just one question, I guess just following on Kemper. The last couple of reports, updates have had something about improvement projects that you might do.
Yeah. That's right.
Could you talk a little about what those are?
Sure. Engineers being engineers, there's really kind of two things. Along the way, in fact, a lot of many of the cost increases we have had along the way through construction was to improve on the original design. Oh, I wish I had put a valve here. Oh, I wish I had another duplicative system over here. Along the way, we have added to the process. They've identified things right now that we believe we will add even after COD and before filing or even into the next year. It's just different things. Really, the idea is kind of twofold. One is to improve the immediate performance of the plant, really going to Paul's question. That goes to what will be the availability out of the box and how can we perform it. The second point really goes to a sustainable question.
Whenever you have a problem, for example, we tripped a gas turbine over the weekend. Well, it wasn't because it wasn't running well on syngas. We were going through a bunch of regime of tests, and we switched between. Remember, this could be a dual fuel plant, and we switched between syngas and natural gas. Boom, boom, boom. When we switched to natural gas, it tripped some logic in the computer code. Okay. We take it down, fix it and improve it. Are there things we can do along the way that lessen the frequency of those kinds of events? That's what we're talking about.
Okay. I guess, is there any kind of scale or size of those, or is this to be?
Haven't disclosed them, I would.
No. We haven't put any numbers out on that, Steve. We're still evaluating what those could be. Certainly it has to go towards operational improvement on the plant, safety at the plant. Those are the priorities that we're putting forth at this time. I'm not going to comment.
We have included, we think, reasonable estimates around all these things in our plan. We think our plan is robust to any reasonable outcome that we can see.
Okay. Just one totally separate question on the Southern Power kind of part of the investment plan. The $1.5 billion a year. I think you said, Tom, that you think it's a conservative number, and it could be a lot higher, but it's a little hard to really know what that number is going to be. Can maybe just a little more color on how we should think about that number being a reasonable number over the period.
I think it's a reasonable number. The ebbs and flows around that number, the pluses and minuses, okay? In the last two years, we did two and a half billion and four and a half billion round numbers. Now we're going to go down to a billion and a half. Could we do more? Sure. Which ones do we want to do? Will there be opportunities, Buzz, bigger than a billion and a half? Sure. We're in a carry forward position on tax credits. That's no secret. We always have to assess our IRRs for any project based on the time-weighted value of cash flow.
We think the best estimate we have right now is a billion and a half per year going forward. That's what we've got in the model. Is there some upside to that? Yeah, potentially. We'll see. Are there downsides of that? Sure. That's what we think is the right number. Yeah.
Tom, Jim von Riesemann from Mizuho. Can you talk a little bit about your thinking around ESCOs and how the business model has evolved from the late '90s, early 2000s to today?
Energy services companies?
Yep.
Okay. let's make sure we're telling the same stuff here.
PowerSecure, what's different today versus back in the late '90s, early 2000s?
Absolutely. Okay, now, we argue about this a little bit. Who was it? Somebody was telling me we got to recapture the word service. Okay? Let me tell you, Mike, having had the scars of ESCOs, energy services business, that is not what we're doing. Now, PowerSecure provides terrific service to customers, all right? I'm not downplaying services, but these are not split the savings deals. This is not some crazy variable, boy, I hope it works kind of thing. This is return on and return of capital recovered over the life of a contract with minimal to no fuel risk. It's not the old ESCOs of the '80s and '90s. Okay? It's not what it is. This is a program that we're putting in place that will replicate what we're doing at Southern Power. It is energy infrastructure. In this case, it is distributed energy infrastructure. All right?
Thanks, Dave.
Oh, sorry. They have the IP.
Hold on, hold on.
We own the IP in this infrastructure that we're doing today. We're not assimilating other people's solutions and rolling out into some alternative financing package. We own the IP around it. These are our solutions we've engineered going out and won these Fortune 500 accounts with. We're in a really rich position to bring value to the table.
Sidney, give us just your quick dimensioning of how many Fortune whatevers.
We serve five of the top 25 Fortune 500 accounts, that may not sound impressive, but realize we had no balance sheet. We had to have a lot of IP for them to trust us as a counterparty. The Southern Company instantly solved that issue for us. We serve eight of the top 25 grocery chains. Again, it goes back. As a counterparty, we weren't a good credit risk. Very rich in IP, and that's how we've won so many large accounts of the top data centers. It'd be stunning. We're not allowed to disclose, but it'd be stunning the number that we're in with.
I know we're talking a lot about that, and rightfully so. It's a big strategic option. This is not a big player right now in Southern Company's earnings. We think with the way technology is evolving, we think of the way customers are behaving, energy infrastructure on their premises, we think may be particularly important. This is our small bet, our option on playing more and more to offset otherwise slow sales. Yeah, Mike?
Hey, thanks, Tom. Mike Weinstein from Credit Suisse. A while back, the Georgia regulators had always expressed an interest in new nuclear beyond Vogtle 3 and 4. I'm just wondering, in light of the settlement that came out, how has that sentiment shifted, or has it shifted? What's the new thinking now on the follow on nuclear?
I think the answer to that question really centers on what ultimately comes out from Congress with respect to any sort of price or cost of carbon implied into the nation's future generation portfolio. If you believe there will be a price or cost of carbon implied in the U.S., nuclear immediately becomes really important. I mean, really important. All of a sudden, coal starts to erode faster. Gas has a really important place, but it has a little bit of a ceiling. You're going to have to build nukes in the future. Is it in the 2020s? It's probably in the 2030s and beyond. As an option, it becomes really important. I think you're talking probably in the 2030s. Did I get your question?
Regulators in Georgia, as a result of the settlement process, did they indicate a shift in thinking at all?
I don't think so. You know what? The state of Georgia has been terrific through this whole process, really as has the Obama administration and Congress, for heaven's sakes. Department of Energy, I've argued that Ernie Moniz is the best energy secretary we've ever had. They have been resolute in supporting Vogtle through its construction. I think we'll continue to have a good showing there. I think whether it is Clinton or Trump going forward, you will still see support out of the administration. America needs nuclear. Okay. I'll stop. We have a terrific track record to talk about on Vogtle 3 and 4. The fact that, number 1, we settled the litigation, we've improved the performance of the contractors on the site. Now we have pending commission approval, a resolution on prudence at Vogtle. Terrific positive stuff.
All that does is solidify what has always been a constructive posture by the state, the commission, the governor, the general assembly, everything else in Georgia. Does that change their view on the future? No.
One thing on the question, go back to that. Through this Integrated Resource Plan, they preserved the option at Stewart County, allowing us to collect $99 million over the next three to five years in perfecting that option. They have preserved, given an outcome that happens on clean power plants and/or cost of carbon, they preserved that option for the state of Georgia.
Yeah. All it did, it just made it more real. Two guys here. Wait, let's get somebody that hasn't asked a question first. Yeah.
Hi, Paul Dobas, Value Line.
Hey, Paul.
How much recontracting risk is there at Southern Power? What happens if you get to the point where you can't renew or extend a contract?
Well, the data point we try to use to illuminate that question, we watch that like hawks, is this notion of 90% of our capacity is covered over, what is it, Buzz? Ten years. That's how much recontracting risk there is. We believe the contracts that are expiring are largely gas-fired contracts, we think there will be a market there. The variance with respect to this plan is not significant. Just make sure. I got you two guys. Anyone else? I just want to get other folks first. Okay, Andy? I'm coming back to you. Yeah, I know you're not going anywhere. Thanks, Julien.
Tom, just as a follow-up on that, are your Southern Power plants fully paid for by the time the initial contract rolls off?
I'm sorry?
Are your Southern Power plants fully paid for by the time the first contract rolls off, or do you rely on some contracting?
Bill. Bill Grantham. Wait a minute. Yeah, go ahead.
I would say that the significant amount of the original investment is paid off for by the end of the PPA period initial, but it's not fully paid off. There's some level of a future cash flow that goes back to pay back the investment of it is paid off, particularly with the renewable assets.
Renewables are really rich cash flow going forward.
Yes.
Okay.
You said initially Vogtle was going to be a 12% rate increase, now it's 6%-7%. What are the deltas there that got it down besides just interest rates?
Sure, we've disclosed it. It's actually a number of things. Production tax credits were getting a full allocation before it was going to be split up. We got loan guarantees that weren't assured. Actually, our performance under loan guarantees has been much better than we expected. There were significant parts of the first contract. If you remember, when we first entered into this contract, there was some expectation of inflation. In fact, some expectations may have been in excess of 4%-5%. As inflation did not show its head, as measured by certain indexes, it behooved us both, between the contractor and Georgia Power, to fix what was otherwise a variable index. We fixed them to our advantage. What am I leaving out?
Loan.
I said interest, Colin.
Loan guarantees.
Loan guarantees, I said that. Anyway. Yeah. That's what the delta is.
Thank you.
Yeah, absolutely. Anyone else? Yeah, right here. Right here. Aaron, let's go, babe. Oh, there you go.
Hi, Mariah Garcia, MetLife. My question's on ratings. Do you know how long Moody's will give you to get rid of the negative outlook? Also if you have a ratings target for the hold co and Southern Company Gas?
I didn't hear your question. Can you ask again?
Oh, how long it'll take or how long Moody's will give you to get rid of the negative outlook.
I'm sorry. I still can't understand you.
The negative outlook on Moody's. How long will it take?
Maybe you should ask Haggerty.
Loan guarantees?
The negative outlook?
Well, yeah, I think you ought to ask the agent about that.
Where is Haggerty? Come on, man. Let's go. Wrap it up. Okay. Well, whatever. Yeah. I don't know. We need to work with them.
Well, we've always been palms up with those guys. We tell them everything that's going on. Every new transaction that we go to, we talk to all the agencies about it. We're in constant communication about what our strategies are and where we're going. Again, it's up to them to evaluate that. We're certainly pushing to get the changes put in place, that's certainly up to them.
We think fundamentally over the past year, our risk posture has changed for the better. Other questions? I'm going to go to these repeats in a minute. I'll go Julien, then Andy, and then All right, here we go. Julien. Julien and Andy. Okay.
Sorry. Back on deck. Just going back to Mike's question from before, a little bit on Georgia. SCANA opted to pursue a new tax election recently, why not follow suit given that it seems like it reduces a little bit of the back-end risk? Separately, and probably more importantly, Fluor talked about a hiring ramp broadly. Should we expect an update or an affirmation of the schedule at a certain point in time? Again, this is more of a procedural kind of issue.
The 174 is a really interesting one. Let me hit that one first. These are the 174 tax deductions. We've been very clear about our belief that Kemper County is absolutely eligible for those deductions. That's where our primary focus has. To the extent SCANA is successful in making that claim, we certainly will follow through on Vogtle. We believe. I'm not going to comment on Summer. That's their business. We absolutely believe that the structure of those research and experimental tax deductions are certainly suitable for Kemper, and that's where we've focused. Steve, do you want to hit the schedule, or Paul, or either one of you? I don't know.
I think comments regard the schedule. There's always ongoing evaluation of the schedule. We don't anticipate any changes to the end date, certainly there'll be variations on some milestones between here and there, and it's a normal part of construction.
Steve, talk a little bit about the learning curve, the benefits of going through three and then four, the placement we just made.
Just to give an anecdote on what's being realized as you go from one unit to the next. Our largest module, CA20, which was set a few years back on unit 3, took us about 16 hours or so from lift to actually set, and it took us 58 minutes to do it on unit 4. It's just remarkable improvements just in quality and doing things a second time, we're trying to leverage that in pretty much everything that we go do. Unit 4 is actually staffed with less people and getting higher productivity based on that.
One more comment on balance of plant.
Yeah. Balance of plant's going very well. Cooling towers are in. Turbine building is going to start to show to be closed here soon. All the structural steel's in. Our focus just remains on Nuclear Island, but feel really good about the progress, particularly the learnings that we see from 3 to 4, and SCANA sees the same learnings.
Steve, hand that to Paul.
Bill, you made a comment about ramping up. We've already got 1,000 people more this year at Vogtle 3 and 4, so that ramping up already occurred for us.
Want to follow up?
One quick, little detail on the ROE from the Southern Power piece.
Yeah.
If I look at just the guidance, use the top end and 12% net income or what have you, about $40 million a year growth, right? Top of the range, 12%. If I think about the $1.5 billion that you're talking about, is it right to assume about a 40% equity layer there? When I try to do that math, it comes out somewhat less than a 13% ROE. That's where I'm trying to get at. Is it an IRR or an ROE that we're getting at? I come out at like a 6% or 7% number.
Well, Bill, you want to go after that? I think it's just some of the tax impacts that impact Southern Power specifically.
Yeah. Okay. I think that that's a question from earlier. We are talking about an average ROE over time exceeding that of the retail businesses. I tend to think about that really as comparable to an IRR. The book return in any given year of the business is going to be a function of the types of capacity they got added, the types of technologies, and so on. That premium over retail is an over-time return, average ROE over time or an IRR. In the front end of new investments, maybe a little less than that. It's going to be greater than that later on. It's, again, it's a mixture of the types of technologies are being added. That's the quick answer of why your math is coming in a little bit less than that.
From a leverage perspective, 40% is a good number to use still for Southern Power.
Yeah. I mean, we're not levering up Southern Power to achieve a result with that question. All right, Andy?
Hi. Andy Levi from Avon Capital. Just a few financial questions. Southern Power is growing 8%-12%. No, 12% a year, excuse me. The gas companies are growing 8%-10% a year. I didn't see for the core utility, electric utility, how much should that be growing a year?
Yeah. There's one slide in my group where it gives the percentage of the 5% at those rings, those concentric rings. You can back into it that way.
Okay.
I believe what you're seeing in net income growth over that timeframe would be just a bit above 2%.
2%?
Yeah.
On the financing plan, I see, I guess that'll be DRIP and ESOP, the equity that you're going to put out there. What is the target equity ratio at Southern Company that you're targeting?
Yeah. Well, right now, we're in the mid-30s, and by the 2021 timeframe, it'll creep up a bit. A little taller than that, between 35 and 40.
At Southern Company?
Southern Company.
Got it. Thank you.
Michael.
Yeah. Thank you again. Michael Lapides of Goldman Sachs. Two questions. One, are we seeing a structural shift in the ability to build significant gas pipelines in this country for NIMBY reasons, good old-fashioned NIMBY siting, permitting, et cetera.
Yeah.
What do we do about that? How do you manage through that as you think about Southern Company Gas's growth rate? That's first kind of question, although it probably has subsets. The other one is the one place we don't really see Southern involved is in independent electric transmission-
outside of the traditional operating companies. Can you just talk about-
Sure
that business in general?
You know what? Let's differentiate pipes. Okay? Look, we make it our business, especially since I've been in this role, to engage constructively with the environmental community. I'm talking about Sierra Club and NRDC and EDF and Union of Concerned Scientists and SACE and everybody else. They have had an important voice in how America is thinking about evolving its generation fleet. I think we've had very constructive conversations, and I think listening to them is important because I think that does help drive a lot of policy that comes out of the administration, certainly depending on who wins and all that. It's kind of important to not only use our own lens, but look through the lens of others and how that may impact where this future is going. Because it certainly has had an effect on coal.
It has an effect, I think, on gas going forward in a more important way. I think it is irrefutable that we need gas today, more importantly, as coal winds down, and it's hard to build nuclear, and we add more intermittent resources in the form of renewables. I'd make that point. From the challenge of building pipes, I want to break that into two different ideas. One is pipes required to support what I think will be the natural evolution of the generation fleet of America is going to be easier to do than pipes required to export gas through LNG facilities. It's a totally different ballgame, I think, on the part of the environmentalist community.
On one hand, pipes required to build new gas plants that will enhance the retirement of coal or supplant what is otherwise a slow-growing nuclear fleet in America, or perhaps in the case of some other companies, a disappearing nuclear fleet, you're going to need more pipes. We can't do it all with energy efficiency and just renewables. We're going to need those pipes in order to handle this transition. Very clear. The question on pipes for export, totally different question. It's a terrific question. Man, we tried to be very thoughtful about that. When I go through these beliefs, you should think about as our beliefs are grounded, this is one of the beliefs that we just didn't show you. There is a difference between pipes for export, pipes to require the enhanced transition of the fleet. Did I hit that one for you?
You did.
The other question was?
Independent electric transmission. It's the one place we don't see Southern Company.
Yes. We're for it. I think these are generally well-known. I'm going to stay away from anything confidential. You must know that there are lots of wind deals, particularly. One of the challenges of wind, I've said this before, is that wind is best located where there are few people, and therefore you need to move the wind resource necessary to where the load centers are. Solar is not like that. Solar can live where the people are, generally speaking. When we think about there are lots of potential deals in the U.S. that depend on long-haul transmission systems in order to support the development of big-scale wind resources in the U.S. If there was a contract for transmission which gave us our degree of certainty when we think about merchant model. Southern Company does not like the merchant model.
If there was a long-term contract that supported the development of transmission, that probably goes hand in hand with the development of large-scale wind resources, yeah, we'd be open to that. It's a chicken and the egg thing. Fella, this is very difficult business. Number one, in order to develop long-haul contracted transmission, not merchant transmission, contracted transmission, you got to make sure you line up at the same time this big scale, because you need big-scale wind in order to justify building a transmission line. You need to line up the wind resources with a sink for the energy, and then you need to be able to handle all the different state issues as you try to build that transmission line. Are we open to it? Sure. It would have to be built consistent with our business model. Okay.
There are lots of proposals out there, we talk all the time. Hard to do a deal, though. Yes.
Hey, Steve. I'll just throw this one out there. If Trump does win, any thoughts on energy policy aspects? Anything that would matter to you guys?
Well, listen, we've made it a point to be involved in both campaigns in terms of just briefing them on what we believe the correct energy policy is. I got to be a little careful. I'm chairing EEI, I am talking specifically from my book right now, not EEI. One of the most important guys in developing energy policy right now in the Trump campaign has been a representative from the state of North Dakota, Kevin Cramer. We've made it our business to have a relationship with Kevin Cramer before he got into this role in the Trump campaign. Kevin also visited, as did a Clinton representative, the Business Roundtable recently. I think Kevin is right on the money. He's a guy that is faithful to the Southern dogma of all the above.
I think he is reasonable, I think he's a guy we absolutely can work with. I think he's a great public servant, very thoughtful, understands the importance of all the above in America's future. He's a terrific guy. Yeah, Barry.
I believe that Southern Company was once the first or second-largest consumer of coal among utilities. You probably have a significant ash pond issue. Could you elaborate a little bit more about that in terms of how you would be recovering that?
Sure.
How many years you're thinking about, and maybe also where you are on the learning curve in dealing with this?
You bet. Paul, I'll get you to comment. Paul is, because of the Georgia jurisdiction, kind of the most advanced on this issue. All of our companies, though, Alabama Power, Mississippi Power, Gulf Power, Georgia, have all been very proactive on this issue in dealing with each of our commissions. The best way to talk this through is with Paul. I'll say, and in fact, I said this two years ago at an annual meeting, that we would effectively close all of our ash ponds in a proactive way. Paul's gone forward, and I'll just start you off with two kind of, again, principles or part of our dogma, that is any ash pond near a water system or a river or something like that we would remove. Otherwise, we will use advanced technology, and he can talk about advanced technology, to close in place.
It's not just cap, it's advanced technology. You just got a ruling by the EPD in Georgia that he'll speak about.
Yeah. Barry, when you look at the ash pond program, specifically for Georgia, we have 29 ash ponds, of which all are going to be regulated by the state EPD, which gives a more stringent regulation regime than they have on the national level. National level would've said 18 of our ash ponds have been regulated. Now it's 29. From a regulatory standpoint, think about the cost of compliance. You have a state rule that's going to allow you to comply, or you have to comply and allocate costs back in terms of recovery through the Public Service Commission. Those things are happening. We're removing all the ash located next to ponds and rivers, or waterways and rivers. We also are putting the advanced engineering technology to ensure no ground source water will go downstream. We're containing it from an advanced engineering-
For example, subterranean barriers.
That's right.
Things like that.
That is also covered in the new rule coming out of Georgia. All those advanced technologies are going to be put in play.
Art, did you want to comment on asset recovery?
Barry, a lot of these assets are part of asset retirement obligations. The customers pay for them over the life of the asset. Those are actually reductions to rate base over time. As you begin to actually pay the cash out to do this, it's actually an increase to rate base. We call it capital investment rather than CapEx, because that's the distinction we're just trying to make.
And-
They both act in the same manner.
You should understand that my kind of coming out when I did, as I did, was really grounded in nothing more than looking after the customer first, making sure the community's better off because we're there. We take the obligation of safety and environmental sanctity extremely seriously, and we're proactive on that. That's why I came out way before anybody. This became a hot topic. We always put the community first, and we think this is an important obligation we take seriously, and we have a great, constructive relationship in our states. Mark, you'd be the next biggest. Do you have anything you want to say or does that cover it?
That was pretty good.
Okay. Yeah, right here. Here we go. Whoa, whoa, whoa. All right, Mike, come on now, man.
How are you thinking about the 5% growth rate projection in terms of sensitivity to the load growth projection, 0-1%? If it was 100 basis points higher, what would we see?
Yeah, that is part of our resiliency comment. Basically, we know that the OPCOs going to have trouble with top-line growth at 0%-1%. Industrials will play a large role in there because they move around so much, at least in a negative fashion this year. As we look at it, the companies are going to exercise additional capital investments to serve their customers better and try to offset that with cost management to keep the price under control. We believe our 5% growth rate is true to that scenario.
You asked the question, though, if it is higher. Yes. You know what? Here again, I will go back to my comment on it is kind of hard to knock us off the balance beam here. What this really translates to would be kind of an acceleration of new generation, kind of where you would see it first. Otherwise, it would be an effect on O&M. That would be how the two effects would be. I still think there is upsides and downsides around this 5%. That is why we did not say 4-6, Alice. We said 5. I would kind of hang with that. Yeah, there is some upside there. What else you want to talk about? I saw the Atlanta Braves, I mean, the Atlanta Falcons beat the Green Bay Packers yesterday. Matt Ryan, Matty Ice, he was awesome. Anything else? Well listen, let me just close with this.
We know this was an investment of time on your part. Thank you so much, and thank you for being loyal shareholders. Those of you that are not, I hope you are now. I think it is a heck of a story, and I am so proud to represent this team. Best team in the industry. Many opportunities to go forward in the past and forward in the future in a positive way. Thank you very much. I think we got lunch set up out here. It is being set up.
Stay for lunch, all?
Yes, stay for lunch. We'll all hang around.