Don’t expect to hear any talk from Southern Co. about mergers and acquisitions (M&A) or expanding into energy trading or buying pipelines. CFO Tom Fanning said Thursday that even though new ventures are considered, “I can tell you that it’s just unlikely.”

Fanning, who was speaking at the Lehman Brothers CEO Energy/Power Conference, said mergers and acquisitions were “unlikely” for Southern “because number one, we already have the size and scale to be successful. It makes us attractive from a risk-return standpoint. And looking at the conservative nature of our business, most M&A does not add accretive value to the shareholder. A good bit destroys value. That would be our bias going in.”

Fanning said first and foremost, any acquisitions would have to contribute to Southern’s 5% annual growth objective. Also, “any acquisitions must be credit neutral, must be faithful to our super Southeast strategy.” He noted that the utility is “very conservatively structured. We don’t like merchant generation, we’re not crazy about pipelines, [liquefied natural gas] LNG…you won’t see Southern in any degree pursuing those things in the future.”

Southern, he said, has an “exceedingly conservative” and “simple” business model. “Our mantra is deal with the people we know best, the place we know best and the business we know best. The Southeast is one of the greatest franchises to do business in. We have a very focused territory.”

There are new sources of growth for Southern, however. Fanning pointed out that the company is continuing to grow its cooperative and municipal power businesses. It also is spending discretionary capital to improve services, including new underground cable line.

Southern, which currently serves about four million customers, has set a 2% long-term growth in customer demand within its retail business, and 1.5% average long-term customer growth. But Fanning noted that he has a “sense that long-term demand is something better than 2%.” Industrial demand in 1Q2004 was up 5% over 1Q2003, and in 2Q2004, demand was up 3% over a year earlier. For the 19 sectors it services, Fanning said 18 had “essentially recovered from 9/11.” Only the textile customers were lower, and he blamed that on outsourcing.

Another point in Southern’s favor is its high customer service ratings, said Fanning. “We have some of the best reliability, some of the lowest prices, and the highest customer satisfaction.” It’s “easy to overlook customer satisfaction…it sounds like pabulum.” But he added that having “satisfied customers” creates a healthy environment for the company to operate in — and a stronger relationship with regulators.

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