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Fanning: Southern's acquisitions not driven by rooftop solar competition


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Fanning: Southern's acquisitions not driven by rooftop solar competition

's recent announcedacquisitions of a large gas utility and a distributed infrastructure technologyfirm represent efforts to accommodate evolving U.S. energy needs, SouthernChairman, President and CEO Thomas Fanning said April 27, and not, as some havequestioned, a way for electric utilities to hedge against any threat fromrooftop solar generation.

InFebruary, Southern announced a$431 million deal to acquire Wake Forest, N.C.-based ,a provider of utility and energy technologies. Southern also aims to close bythe end of the year its $12 billionacquisition of gas utility and pipeline company Southern's AGL dealis part of a trend of sprawling companies, including and , whose primarybusiness is regulated electric utilities, snatching up and paying premiums forgas utilities as a strategy toincrease regulated earnings and own gas transportation infrastructure in key hubs.

Themost recent example is ConsolidatedEdison Inc.'s joint pipeline and storage venture, , withCrestwood Equity Partners LP.The Con Edison joint venture and other deals have prompted some analysts toposit that these mergers and partnerships represent a to utilityelectricity sales from rooftop solar.

Askedwhether a potential threat of rooftop solar was driving Southern's recentacquisitions, Fanning's response was unequivocal: "Absolutely not.No, it has nothing to do with that. Zero," he said during an April 27interview with S&P Global Market Intelligence ahead of the company'sfirst-quarter earnings call.

"It is clear that renewables are advancing but becauserenewables are intermittent resources and because the big workhorses of nuclearand coal are really hard to build in the future, gas is going to play anincreasingly important role. We will need combustion turbine technology to beable to follow the intermittency characteristics of renewables and we will needgas combined-cycle technology to replace the otherwise lost baseload capabilityof the United States," Fanning said. "Because there is tremendousopportunity, we believe, with just the revolution in technology that haspermitted cheap, plentiful gas, we think gas infrastructure is the way for usto secure the most reliable, best-priced supplies for our customers. That iswhat our business is predicated on."

Atthe same time, Southern's move to acquire PowerSecure offers a way to begin tounderstand the needs of primarily commercial and industrial customers forso-called "behind-the-meter" services, including distributedgeneration, according to Fanning, who acknowledged that the traditional utilityrole of electric utilities to "make, move and sell" electricity ischanging.

"Because of advances in technology and because of anevolving customer requirement set, particularly with customers with exceedinglyhigh reliability requirements — think data centers — this notion of 'make, moveand sell,' now may emerge on the other side of the meter, essentially on thecustomer premises," he said. "We think that the most attractive areasfor this are areas of the United States which have challenges in terms ofreliability, price or customer service. And so what we have thought about withPowerSecure is a reasonably small but nevertheless important way for us tostart evaluating this evolution of the nation's business model in other sectorsof the United States."

Fanning qualified that statement by touting Southern'sreliability performance, saying these factors were not hitting its own utilities,but the company is able to "learn and participate" elsewhere in theU.S. where such issues are in play.

His comments followed the release of ,in which the company topped consensus earnings estimates and reported increasesin weather-adjusted sales growth.

Southern reported weather-adjusted kWh sales to retailcustomers at its four utilities increased 0.4% compared to first-quarter 2015,with weather-adjusted residential sales up 1.4% and weather-adjusted commercialsales up 0.8%. Though industrial sales were down about 1%, Executive VicePresident and CFO Arthur Beattie attributed that to outages in key sectors likechemicals and petroleum, and said the company remains on track for positiveindustrial sales growth in 2016. "Residentially, we're just knocking thecover off the ball," Beattie said.