Scott Gammill:

Thank you Rob. Good afternoon, and welcome to Southern Company's First Quarter 2024 Earnings Call. Joining me today are Chris Womack, Chairman, President and Chief Executive Officer of Southern Company; and Dan Tucker, Chief Financial Officer.

Christopher Womack:

Good afternoon, and thank you for joining us for what is such an exciting time for our company. Monday, we announced that Plant Vogtle Unit 4 successfully achieved commercial operation. Units 3 and 4 now deliver more than 2,200 megawatts of reliable 24/7 carbon-free energy and are designed to do so for decades to come. With all 4 units operational, the Vogtle site is now the largest generator of clean energy in the country.

Christopher Womack:

Thank you Dan. Our system performed extremely well, and that's a testament to our team's collective commitment to serving customers reliably across our business, especially as we meet the demands of the extraordinary growth that we're seeing. Particularly within our Southeast footprint, we continue to see strong economic development activity with first quarter investment announcements representing the second highest first quarter on record as our teams continue to work closely with our states and local development authorities to attract new businesses.

Daniel Tucker:

Chris. So how do we know the load in our forecast is real? The short answer is that we've already incorporated risk adjustments to the forecast. One could argue it's a conservative view. We would say our forecasts are informed by our experience and by our continuous engagement with prospective new and existing customers.

Christopher Womack:

Before taking your questions this afternoon, I'd like to first take a moment to reinforce that as we serve these growing energy needs, we also remain focused on achieving our long-term greenhouse gas reduction goals, including net 0 greenhouse gas emissions by 2050.

Daniel Tucker:

Yes, absolutely. So just big as a bread box. So it's roughly -- if you think about our total sales, kind of the average price, you're talking about $40 million for a 1% change in our overall sales. Now for the vast majority of what's showing up here, whether it's data centers, some of these other large load industrial customers, it may skew slightly below that. So really it's somewhere in the range of $20 million to $40 million for 1% change in sales.

Daniel Tucker:

So there will be some additions based on the approval, Carly, and that largely pertains to the additional storage resources, the battery energy storage system. So if you recall what we included was two very specific projects in our outlook, but the commission actually approved 500 megawatts of owned storage, which is a little more than double what we had assumed.

Operator:

Our next question is from Steve Fleishman with Wolfe Research.

Daniel Tucker:

Yes. Look, I think it's fair to characterize that everything that is occurring and particularly if the momentum continues and what we're seeing, I would characterize that as adding an upward bias to where we are from an earnings perspective. And you kind of said it, Steve, and we certainly saw your commentary and your note yesterday. We are a big company. We are issuing equity. But even with all of that, these incremental investments should have an accretive effect. But I think it's just too soon to say exactly what that means, but an upward bias, absolutely exists, particularly if this momentum continues.

Christopher Womack:

And Steve, the only thing I'd add is we talked to you before about not just about raising growth rates, but it's about the durability and the length, how we extend the runway is something that we are keenly focused on as we've talked to you many times about. And I think that's clearly an opportunity that we are afforded by this added growth.

Christopher Womack:

Steve, the only thing I'd add, I mean, one of the things that we talked about in our prepared remarks, we've talked to you more about how do we use this opportunity to make sure we put downward pressure on rates across our customer classes and making sure that we price this new load in the right way. And I think we've demonstrated our ability to do that and having the resources and tools to do that going forward. So it provides us additional excitement for us as we go forward.

Christopher Womack:

Yes, the consumer advocacy group inside the commission, that bill was not passed by the legislature. The legislature did pass a bill that provided what I think is some certainty around the election cycle going forward for the commissioners. There was some confusion chaos and time and schedule got a little short because of the court cases.

Steven Fleishman:

And then just last question going back to the data center update, which was very helpful. Just we're hearing from a lot of other utilities about data center growth that they're seeing. And obviously, you're kind of somewhat at the forefront of that. But just you mentioned in some cases, taking deposits or taking money to kind of lock that in, that the customers can pay upfront. But just how are you trying to assess the risk of some of the customers putting themselves in line in 6 different regions and then in the end, only picking 2 of them and just making sure that you're not on the losing end of that? Or just trying to kind of put that into your assessment of risk.

Operator:

Our next question is from Shahr Pourreza with Guggenheim Partners.

Daniel Tucker:

Yes. So importantly, Shahr, the way I characterize that is that if we continue to see this momentum, right? So it's certainly not the cards we have today. The cards we have today have greatly improved our overall profile. It's added that durability. It's massively derisked kind of the outlook. But it's going to take continued momentum on this front more investment, more sales growth over the long term.

Shahriar Pourreza:

That's perfect. And then, Chris, maybe just quick one for you. There's been obviously kind of a debate in the industry around the behind the meter and in front of the meter, and language from some of the hyperscalers seem to show a little bit of a preference around self-generation and self-supply with some backup capacity, which can obviously impact some of the demand numbers as we're thinking about things more prospectively, right? Chris what conversations are you having around this as you kind of engage with new customers?

Operator:

Our next question comes from Nick Campanella with Barclays.

Christopher Womack:

I don't think there's anything embedded in the plan. I think we -- it's about announcements and that we see forthcoming. We know I think there was an announcement today in Alabama of a 200-megawatt facility that Meta just announced. And then you saw also some legislation in Mississippi that was providing incentives for data centers and other hyperscalers to come into Mississippi. So we see it coming, but that activity -- those projects have not assumed are not included in the forecast as we talk about it today.

Daniel Tucker:

Yes, absolutely, Nick. That profile we described in the fourth quarter that kind of ramps from that 14% last year up to 17% in the back half of the plan, it's absolutely still the profile to watch as this incremental capital opportunity emerges. What we'll do is issue sufficient equity probably through something like an ATM and through our plans to kind of restore the metrics to where they would have otherwise been without that incremental CapEx.

Operator:

Our next question comes from Durgesh Chopra with Evercore ISI.

Daniel Tucker:

So it's about 3/4 existing data centers and then a little bit the other quarter kind of coming from new data centers year-over-year. So we're seeing both. We're seeing a continued ramp-up of new facilities, existing facilities ramping up their usage.

Christopher Womack:

Yes. I mean I think that I mean, it passed and now sitting on the governor's desk and so waiting to see what happens there. I think one of the things the government wants to do is let economic development activities know that Georgia is still open for business. And so I think that's one of the key factors in consideration that he will pay attention to as he makes a decision on that bill. But right now, I don't know what will happen, but it's there for him to take action on. And so we're waiting just like everybody else to see what happens.

Jeremy Tonet:

Congratulations on Vogtle Unit 4 there. Just wanted to continue with I guess the topic is your and given the notably higher than expected load growth in earnings, in ongoing data center investment in your service territory, just wondering how you think this impacts future generation mix and specifically coal plant retirement dates given what's happening here? Is there -- could there be deferrals or just any thoughts on that?

Jeremy Tonet:

That makes sense. And how do you think about the feasibility of carbon capture in your territories?

Christopher Womack:

I mean I can give you my speech if you'd like to hear it. I mean the country is going to need more nuclear. I mean there's clearly no technology better suited to support demands of this increasingly digital economy and society.

Operator:

Our next question comes from Anthony Crowdell with Mizuho Securities.

Daniel Tucker:

Yes, Anthony, this is Dan. Look, I think largely, any commentary you heard was simply focused on affordability and ensuring that the benefits that Georgia Power said we're there, end up reflected in customer rates. And that's exactly what the stipulation does is provide that commitment so that when we file the 2025 rate case, one of those moving parts is going to include incorporating those economic benefits for all customers into that calculation.

Agnieszka Storozynski:

So first maybe about your -- the Southeast Energy exchange market. So when it was first created, I thought that was a sign that maybe there's some excess power in your neck of boots and then you're trying to distribute it to other parts of the Southeast. Now I'm thinking the other way. But maybe there's a way to move some power into Georgia to actually address the load growth. Again, I'm just clearly fishing for any upside potential associated with this newly created power market?

Daniel Tucker:

Yes. And really just to create a more nimble market for those intermittent resources to make sure that customers, wherever it's needed benefit from that very, very low-cost energy.

Operator:

Our next question comes from Paul Fremont with Ladenburg.

Christopher Womack:

And Paul, I think it's hard to answer that question, but I would think not, but also I think you have to look at the competitive nature of economic development across states. And where does it put Georgia and then what signal does it send. But also, I think it's about -- it's a big question about resilience and the ability to meet the demands of these customers and not just reliably, but providing them the resilience they expect and the demand.

Paul Fremont:

And then my other question has to do with sort of the tougher EPA rules. If those ultimately were to be adopted, does that -- do you need to accelerate the time frame for coal plant retirements?

Operator:

Our next question is from Ryan Levine with Citi.

Daniel Tucker:

I don't know that we have the specific construction updates, Ryan, but I will tell you just in general, this is -- I mean, think of it as a continuous kind of waterfall, right? I mean there are always data centers coming in and exploring and then committing. And so it's just -- it's an ongoing thing. So we've got -- right now, there's 12 under construction that totaled about 2,400 megawatts.

Christopher Womack:

I think we said before, Georgia has an RFP in 2025. And so they'll factor in new requests, new demands, new load doing that proceeding. Alabama and Mississippi will do make similar decisions in their processes based on the demands and requests that they receive as well.

Christopher Womack:

Because it goes back to some of the points we laid out in the prepared remarks. Is this load real? And so I think that quarterly update helps give the commission and the staff the information they need to give confirmation of the reality of this load.

Ryan Levine:

And then last question for me. In terms of the customer preference for or carbon resources. Any stipulations or any requirements that they're speaking to specifically as they're looking to decide what locations to locate their data centers?

Daniel Tucker:

And we're very transparent about our own transition plans. And I think that is an opportunity for them to kind of latch on to transitioning along with us.

Travis Miller:

Also congrats on Vogtle and I thought it was a very good choice of words arduous in your prepared remarks. I appreciate that.

Travis Miller:

I figured. On the load forecast and specifically even the Georgia IRP, what does that mean for T&D investment? Is there upside there in addition to the generation upside you talked about?

Travis Miller:

And then can you remind us the Alabama and Mississippi IRP schedules? And then in addition to that, would you expect some similar issues to come up as what came up in Georgia in those states? Or is there something different going on there?

Operator:

And that concludes today's question-and-answer session. Sir, are there any closing remarks?

Scott Gammill:

Thank you, Malika. Good afternoon, and welcome to Southern Company's fourth quarter 2023 earnings call. Joining me today are Chris Womack, Chairman, President and Chief Executive Officer of Southern Company; and Dan Tucker, Chief Financial Officer. Let me remind you, we'll be making 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 securities filings. In addition, we'll present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I'll turn it over to Chris.

Dan Tucker:

Thanks Chris and good afternoon everyone. As you can see from the materials we released this morning, we reported strong adjusted earnings per share of $3.65 for 2023, which was the very top of our 2023 guidance range. The primary drivers of our performance compared to 2022 are higher utility revenues and lower non-fuel O&M expenses and income taxes, somewhat offset by higher depreciation and interest expenses. Mild weather was also a significant headwind with 2023 marking the mildest year in our history for our electric service territories. Our ability to deliver 2023 adjusted results at the very top of guidance is a great testament to our team and to the resilience and strength of our portfolio of companies. A detailed reconciliation of our reported and adjusted results compared back to 2022 is included in today's release and earnings package. Turning now to electricity sales in the economy. Weather-adjusted retail electric sales were down 0.4% for 2023 compared to 2022. Strong usage drove commercial sales growth of 1.3% for the year, which was partially offset by lower residential usage with both commercial and residential sales impacted by the return to the office dynamic. We continue to see robust residential customer growth with the addition of over 46,000 residential electric customers and nearly 27,000 residential gas customers. Since 2020, we've added over 200,000 residential electric customers, which represents the highest four-year total in decades. Industrial sales finished down for the year nearly 2%, largely due to continued slowing in housing and construction-related sectors as well as lower sales to chemical companies due to outages and long planned plant closures. Consistent with the drivers detailed in Georgia Power's recently filed 2023 Integrated Resource Plan update, economic development in our Southeast service territory remains incredibly strong. Several years of extraordinary success in attracting new and expanding businesses to our states, underpins our long-term electricity sales forecast. While electricity sales growth is projected to remain around 1% to 2% for 2024 and 2025, growth from 2025 to 2028 is projected to accelerate to an average of approximately 6% annually, with Georgia Power's total retail electric sales growth projected to be approximately 9% annually over this same period. The magnitude and velocity of this growth are significant drivers for the increased capital investments reflected in our current outlook. This projected growth also represents a tremendous opportunity to de-risk our outlook and benefit customers as a substantial projected growth in kilowatt hour sales from new manufacturing facilities and data centers has the potential to put downward pressure on existing customers' rates. Turning now to our earnings projections for 2024 and beyond. Our adjusted earnings per share guidance range for 2024 is $3.95 to $4.05, and our projected long-term adjusted EPS growth rate is 5% to 7% from that range. In early 2021, we provided the investment community with a stable post Vogtle 3 and 4 construction and EPS projection, with an initial and reasonably wide 2024 guidance range. It is perhaps the greatest of understatement to say that the world has changed a lot since early 2021. On a macro basis, we've seen significant inflation and higher and then higher for longer interest rates, which alone has translated to interest expense for 2024 hundreds of millions of dollars higher than any of us assumed three years ago. Additionally, relative to our projection in early 2021, the projected in-service date for Vogtle 4 moved into 2024 from 2023. In the face of these challenges, we've continued to work extremely hard to grow our business and to create value for investors. Compared to our projections in early 2021, our state-regulated utility rate base for 2024 is projected to be approximately $6 billion higher, while lower O&M expenses and higher sales are projected to contribute hundreds of millions of dollars more than previously projected to help maintain affordability and help pay for those investments. We estimated adjusted earnings of $0.90 per share for the first quarter of 2024. Our capital investment plan continues to be well over 95% attributable to our state-regulated utility businesses. The current five-year capital investment forecast, totaling $48 billion, reflects a $5 billion increase in state-regulated utility investments relative to our forecast a year ago. This 12% increase in capital spending reflects our ongoing efforts to further increase the resiliency of our electric and gas networks and our technology infrastructure. It also partially reflects new resources proposed in Georgia Power's 2023 IRP update, about 60% of the brick-and-mortar megawatts proposed. We have maintained our disciplined measured approach to capital forecasting for our state-regulated utility businesses. Given the magnitude of change in our projected sales growth and the timeframe in which new resources are needed to serve higher peak demands, we felt it was appropriate to go ahead and reflect certain new resources in our capital plan. Additionally, our capital investment forecast tend to grow, especially in the later years as the visibility into customer additions improves, regulatory processes unfold compliance obligations evolve and our long-term integrated system planning is refined. While the increases in this year's five-year forecast represent an outsized upward adjustment due to the scale and velocity of the projected growth in the near-term, we do believe it's reasonable to expect a historical trend of capital increases to continue going forward. On its own, our capital investment forecast of $48 billion supports annualized state-regulated rate base growth of approximately 6%, providing a solid foundation for our long-term outlook. Any upside to the capital forecast will simply serve to add durability to an already strong outlook. Strong investment-grade credit ratings remain a priority. We continue to believe that in order to be a high-quality equity investment, a company must also have high-quality credit. As we near completion of Vogtle Unit 4, the reduction in major project construction risk and the improvement in our FFO should strengthen and meaningfully improve our credit profile to help ensure we preserve what we believe will be a positively differentiated profile. We are also turning on our internal equity plans to fund the incremental capital investment at our subsidiaries that I highlighted earlier. These plans typically provide approximately $350 million of new equity annually. Additionally, we'll preserve our financing flexibility and optionality with a continuous focus on preserving and improving shareholder value. For example, we will continue to maintain an at-the-market or ATM plan to partially finance potential additional increases in capital spending in our subsidiaries or potentially, to partially refinance callable hybrid securities, if we determine doing so preserves or improves our credit and long-term EPS objectives. Southern Company strives to deliver a superior risk-adjusted total shareholder return, and we believe the plan that we've laid out supports that objective. Our customer and community-focused business model the growing investments in our premier state-regulated utility franchises and the priority that we place on strong credit quality and our remarkable dividend history all contributes toward making Southern Company a premier investment. Chris, I'll now turn the call back over to you.

Operator:

Thank you. [Operator Instructions] Our first phone question is from the line of Shar Pourreza with Guggenheim Partners. Please go ahead. Your line is open.

Shar Pourreza :

Hey, Chris and Dan. Good afternoon. Just quickly on the new guidance that you rolled forward. Does the new 2024 estimate range still include a Vogtle charge? So should we be adding back $0.05 or so to grow off the 5% to 7% like you've talked about in the past? And sort of that new 6% rate base growth estimate now comes with equity, I guess, what's the comfort level of hitting the midpoint of that EPS growth range, which you just reiterated? Thanks.

Shar Pourreza:

Got it. Okay. That's helpful, Dan. And then just lastly, I know one of your peers has spoken pretty extensively on sort of nuclear PTCs, and obviously expects to receive hundreds of millions of dollars a year to fund sort of that capital plan. I guess, does the plan today -- do you expect to receive anything material on the nuclear PTC fund? Is it part of any of your credit metrics or funding plans? Thanks,

Shar Pourreza:

Terrific. Thank you, guys. Super helpful, Dan, really thank you.

Chris Womack:

Thanks Shar.

Chris Womack:

Good afternoon, Steve.

Dan Tucker:

Yeah. So I've always kind of said we see a forecast that gets us to 17-ish, it's the way I've characterized it in the past. So let me tell you where we are, Steve, here today, and I think it's still differentiated and a terrific story and we're doing everything we can to make sure we're being conservative in the way we think about this. So if we just think about Moody's metrics, our actual result for 2023 was 14%. Keep in mind, that's before Vogtle 4 is in service. 2024, with Vogtle in service on the timeline, we believe those metrics will improve by more than 100 basis points in 2024. The weight of the incremental capital that we're deploying and the fact that some of this is kind of long live construction, you think about building new gas plants at Georgia or other things, there's a bit of regulatory lag that weighs a little bit on credit metrics. And as that resolves itself, cash flow improves. So with the forecast that I see go from 14 to over 15 in 2024, and about a 50 to 60 basis point improvement every year after that over time and that's a function of that capital, it's -- we're issuing the equity to continue the improvement. And then there's a little bit of impact in the short-term for under-recovered fuel that as that gets collected and the debt goes away, that also adds to that upward trajectory. So in my five-year forecast, we get kind of in that mid-16 towards 17 range. But again, every year in the five years is an improving story, and still hundreds of basis points above our thresholds.

Chris Womack:

No, go ahead, go ahead. Finish your question.

Chris Womack:

Yes, it is an unprecedented growth that we continue to witness from economic development activities. And so yeah, this is a very conservative look. I mean, we look for -- we factor in build permits, building permits in terms of actual announcements of ground has been broken. I mean, so we look at not just companies that are forward looking and making site visits, but there's been some demonstrated commitment that they will, in fact, be building a project in the state. So we go through those thresholds before, we make those filings in terms of being -- having some certainty that these projects are, in fact, real. We've just seen unprecedented economic development activity, say, for the past three years. And we continue to have an aggressive pipeline. But as we go to the commission for this updated IRP, we just factored in those companies, those businesses that has clearly demonstrated and taken actions that we think of – that shows some firmness in their participation, in their operating businesses in the state.

Chris Womack:

Yeah. But Steve, this is a very conservative look as we make these decisions.

Chris Womack:

Data centers represent right now, we think somewhere around 80% of that emerging load.

Chris Womack:

Thanks Steve. Have a good day.

Carly Davenport:

Hey good afternoon and thanks for taking the questions. Hey how are you? Thank you. Maybe just to start on the new five-year plan. Could you just talk a little bit about what drove the assumptions you made around including some of that spend on the incremental resource needs in the Georgia IRP? And then with the commission order sort of expected there in April, how would you think about updating the capital plan if it's necessary after that decision?

Carly Davenport:

Great. Thank you for that. That's super helpful. And then maybe just as we think about executing on Vogtle Unit 4. Just any insights on kind of the near-term milestones that we might get updates on that we can gauge project progress there? And then to the extent that timeline does slip beyond kind of the April that's embedded into current guidance, can you talk a little bit about some of the levers that you might have to pull there to sort of offset those impacts?

Dan Tucker:

Yes. And Carly, I'll speak to the flexibility. I mean, obviously, I mentioned earlier, we're kind of already deploying some of that flexibility to address what we expect to be us here today in April in service because beyond that, we've laid out, it's roughly $0.03 for every month, but that's partially why we have a range, right? I mean it's a $0.10 range out there. So, it could be a function of moving us within the range for the year or depending on the circumstances as the year plays out, whether it's weather or something else, we might have some greater degree of flexibility. It's just too early in the year to really be that detailed about exactly how that might play out.

Chris Womack:

You bet, Carly.

Chris Womack:

Hi, Julien.

Dan Tucker:

So I'm not sure where you're headed with improved ROE.

Dan Tucker:

Certainly, not improving returns from an overall, say, regulated utility perspective. From a -- we really view that as the opportunity to kind of put downward pressure on existing customers' rates. I mean, our objective from an ROE perspective is regular, predictable, sustainable, I think you'll continue to see it play out that way. Just to be clear, Julien, on the sales growth that we've laid out here, so this is roughly 6% in the long term for Southern that 9% number for Georgia Power, this is actually based on a more conservative view than what's in the IRP update because the IRP update had to put some degree of expectation for additional success from an economic development perspective so that we do stay ahead of this from a resource perspective. It's not a huge differential, but what it also kind of reinforces is as this continues to play out, those numbers have the potential to continue to go up.

Dan Tucker:

No, nothing's changed in terms of what I believe the financial profile supports which, again, my objectives, I've said this before, I think our parent company being a BBB+, kind of the A category for all the utilities, I think the profile we see ahead of us fully supports that. The only thing that's changed is a slightly slower ramp-up in those metrics because of the incremental capital that we're deploying. But in terms of where we stand relative to any of our thresholds, it's several hundred basis points above any of those in every year, and every year improves.

Chris Womack:

Yes. And so yes, we've done all the analysis, we sent the pump back to the manufacturer. And we think we identified the cause of the issue, but a root cause analysis has not been performed yet. But we have tested all the other pumps. And with the new pump, we made sure there were not any similar issues, but we think we're in pretty good shape with the pumps as we go forward.

Chris Womack:

Thank you.

Chris Womack:

Hi, Nick.

Chris Womack:

Good afternoon.

Chris Womack:

I guess, as we have looked at the pump that we sent to the manufacturers, as we identified what we thought the issue was, we think it's not an issue with the other pumps. I mean, we test the other pumps. We assess the pump, the new pump that we installed. And we think we just have a good handle. And on these pumps, I think you consider the run time. I think that provides good color to kind of, I guess, the confidence we have in the pump and what we've identified as the issues and things we have to do to make sure we don't have similar issues as we go forward.

Nick Campanella:

Absolutely. Yes, that's helpful. And then just on the capital plan, and reflecting roughly 60% of the IRP, I know that you kind of get a decision in the first half of this year. So just how do we kind of think about tweaks to the financing plan? Is it just going to be another fourth quarter update this time next year? Or is there a mid-period opportunity in the cards?

Chris Womack:

But you'll also see great transparency through this process, man, as the commission and Georgia works through the process, many staff is filing testimony today, and they may have a different perspective. But you'll see that process play out and that leads us to the decision in April by the commission. But you've seen these IRP processes before. So those processes will continue as we go forward, and you'll see real time kind of how it unfolds.

Operator:

Thank you. Our next question is from the line of David Arcaro with Morgan Stanley. Please go ahead. Your line is open now.

David Arcaro:

Thanks so much. Hey, thank you. Let's see. Thinking about that load growth trajectory, is 6% rate base growth still the right kind of parameter to think about longer term? 6% load growth, 6% rate base growth, is that enough to kind of handle the system strain, the generation need to strain on the T&D system over time? Or is there potential upward growth rate pressure on that rate base growth number as you get into later years of this decade?

David Arcaro :

Got it. That makes sense. And I was wondering if you could elaborate a little bit on how you're thinking about the rate impacts, coming from that load growth? Are these low-priced new commercial customers when you're thinking about data center and manufacturing customers, such that there is a lot of grid investment that has to be covered by others within the system or other opportunities here? It sounded like you kind of see the opposite where you're bringing in a lot of revenue that ends up being downward pressure on the rest of the system. So I'm wondering if you could elaborate a little bit on how you see rates progressing over time?

Chris Womack:

No, we do expect to see rate decreases for our customers with these additional sales and the customer growth that we'll experience. We think that should more than offset the cost of the resources needed to serve. And so we -- affordability is something we pay a lot of attention to, and there are things we do internal. And we think that one of the benefits of this sales growth is having the opportunity to put downward pressure on rates for our customers across the board. And so that's kind of how we see it and how we evaluate each project. I want to make sure that is, in fact, putting downward pressure on rates.

David Arcaro :

Excellent. Thanks for that. Really helpful. Appreciate it.

Operator:

Thank you. Our next question is from the line of Jeremy Tonet with JPMorgan. Please go ahead. Your line is open.

Jeremy Tonet:

Hi. Good afternoon.

Jeremy Tonet:

Just wanted to come in, I guess, on the debt funding side, if I could start. I understand the Georgia Power debt funding increase driven by the IRP there. But at the holdco, just wondering what's the main contributor to the kind of big step up there of expected debt issuance? It looks like several billion in the 2024 plan now, and I think it was much less than that before. So just kind of curious, I guess, on the holdco debt issuance step-up expectations.

Jeremy Tonet:

Got it. Thanks for that. And just curious if you're able to share any thoughts on the Georgia PSC elections here. Just as far as from what you guys see inside the state for those pending elections. Do you expect the ballot in the elections to happen before the November general election? Or do you think it all kind of comes in November? Just kind of curious, I guess, how you think timing could shape up there?

Jeremy Tonet:

Got it. And just a quick last one, if I could. If you guys are running an RFP process in the Georgia IRP, and how you think Southern Power -- Georgia Power stacks up, I guess, in RFP process there?

Jeremy Tonet:

Got it. That’s helpful. I’ll leave it there. Thanks.

Operator:

Thank you. Our next question is from the line of Durgesh Chopra with Evercore. Please go ahead. Your line is open now.

Durgesh Chopra:

Hey, good afternoon team. Just -- is there a way for us to give us a range? And I understand if you can't. But just in terms of the current capital plan, was that the Georgia IRP? What I'm after is what looks like a successful outcome there as we await the April decision? Just trying to see what is baked into the plan and what to look for in that April decision?

Durgesh Chopra:

Understood. I appreciate that, Dan. And then as we think about just along those lines, incremental CapEx upside. Is there a rule of thumbs, again, just for our models, high level, how should we think about it getting financed? You've got some strong load growth. But when we're thinking about higher CapEx, what percentage could be equity finance versus debt? Any guidance there?

Durgesh Chopra:

Very clear. Thank you so much. Appreciate the time guys.

Operator:

Thank you. Our next question is from the line of Andrew Weisel with Scotiabank. Please go ahead. Your line is now open.

Andrew Weisel:

Hi. Good afternoon. A couple of quick follow-up questions, really. One, just to clarify, the equity of $350 million per year. That's through 2026 in the slides. It kind of sounds like you're saying that's through 2028. Should we think of that as just a run rate of $350 million per year going forward and potentially more if there's more CapEx?

Andrew Weisel:

Okay. Very good. Next, on the CapEx update. Just to clarify, and sorry if I missed it. Does that include anything for Alabama Solar? Or would that be incremental?

Andrew Weisel:

Sounds good. One last one, if I may. Dividend growth, you've been very consistent at $0.08 per share, about 3%. Given the CapEx outlook, is there any point in time at which you might reconsider the trajectory?

Andrew Weisel:

Very clear. Thank you so much.

Chris Womack:

Thank you.

Anthony Crowdell:

Hey good morning Chris, good morning Dan. If I could just pitch up one quick one on the data centers and I guess, the load growth. It seems like we finally are going to get some load growth in this sector, and we're all looking at data centers has helped. But it seems that maybe the rate design question, we're all trying to figure out typically a lower-margin customer, large investment requirement. And earlier, you touched on maybe helping with some customer bills. I just -- my question is, if you go deeper into that on -- is it going to be bigger bill impact and bigger fights and rate design or you don't think that's an issue?

Dan Tucker:

Yeah. And Anthony, what it appears a lot of these data centers are beginning to do is prioritize reliable, resilient service over many other things. That gives us the opportunity to price it appropriately for the benefit of everyone else.

Anthony Crowdell:

Great. Thanks for taking my question.

Operator:

Thank you. Our next question is from the line of Angie Storozynski with Seaport. Please go ahead. Your line is open now.

Agnieszka Storozynski:

Good morning. Great. I guess -- I know that everybody is asking questions on data centers, but I'm just -- just again, maybe just taking a step back. So when somebody wants to locate a data center in your service territory, do they just get connected to the grid? Or do they develop their own power sources? Do you actually see that they, for instance, have some preference for non-emitting resources. Do they use you more as a backup power source. Again, just -- just, again, trying to understand the dynamics of those data centers being added to in Georgia.

Agnieszka Storozynski:

But again, it's not self-supply, right? So they use Georgia Power, for example, as a first source of power.

Agnieszka Storozynski:

Okay. And then secondly, again, I know this question has been asked over and over. Just hard to believe that the load growth is not having a bigger impact on your earnings growth? And again, I don't even imagine this is like an emerging markets sort of pace of load growth, especially for Georgia and those outer years, and yet there's no impact from -- again, from our vantage point on your earnings growth. Is it just because the interest expense drag is so pronounced that it absorbs the help that you're getting from higher load growth?

Agnieszka Storozynski:

Okay. Understood. Thank you.

Operator:

Thank you. Our next question is from the line of Paul Fremont with Ladenburg. Please go ahead. Your line is open.

Paul Fremont:

Great. Congratulations on the good quarter.

Paul Fremont:

Just to clarify, if you were not to get sort of the higher growth rate in sales after 2025, would that have an impact or change -- potentially change your 5% to 7% growth target?

Paul Fremont:

Okay. Great. And then I noticed that the gas capital spending is roughly unchanged. Can you sort of share with us what you're anticipating is going to happen in Illinois? And is there spending that's being shifted from Nicor to any of the other gas subsidiary?

Dan Tucker:

Yes. And any changes in Illinois are modest, to be fair. I mean -- and the outcome there for us, while disappointing, also provided a bit of a road map as to how to be successful going forward in navigating that jurisdiction in terms of just the things we've got to make sure we do as we deploy capital. And keep in mind, a huge, vast majority of the capital that's deployed for Nicor Gas is compliance related. And so there's only so much to kind of not do in the first place.

Dan Tucker:

Yes. Great question, Paul. So again, we were at 6% growth last year in rate base. We've added $5 billion of incremental capital to that. It's -- we kind of characterize it as approximately 6, but then also the shares we're issuing, and I think I mentioned this earlier, was that equates to a fraction of a percentage and it's kind of just in the rounding. We feel very comfortable that net-net, how all these things stack up is a conservative achievable forecast.

Chris Womack:

Thank you.

Travis Miller:

Hello, everyone. Thank you.

Dan Tucker :

Thanks Travis.

Dan Tucker :

Yes. Yes, Travis. You did. And so again, our cadence of growth has been $0.08 per year for several years. I think it's reasonable to expect that to continue, of course, it's all subject to the Board's oversight and approval. But what that will do is take us during this high period of CapEx, which hopefully goes on for a very long period of time, brings us comfortably down into the 60s from a payout ratio perspective. And so that's a good place to be, and we'll evaluate it every year with what the forecast looks like and what's appropriate. Right now, I think the reasonable expectation is that continued modest growth, which is just below 3%.

Dan Tucker :

Yes. There's certainly a relationship, I wouldn't call it a correlation, but to the extent we're building a new gas plant, certainly, that comes along with incremental O&M to the extent we're building new transmission distribution lines, there's some maintenance component to that. But that's also part of the cost structure that we're ensuring these new rates and revenues will cover such that the net result is the opportunity to put downward pressure on the existing rates.

Chris Womack:

Thank you.

Ryan Levine:

Hi, everybody.

Ryan Levine:

Good. How are you? With Vogtle's COD targeted for April freeing up some management attention and the personnel changes that were highlighted, do you see any meaningful opportunities to reduce O&M spending below the current guidance as time progresses? Or are these initiatives tabled, given all the opportunity in Georgia by the IRP process?

Dan Tucker :

Yes. And just as a nuance, all the costs associated with completing Vogtle 3 and 4 is a capital cost. And so those aren't O&M costs that are an opportunity to reduce.

Ryan Levine:

Okay. And then what's the peak hour load growth forecast in Georgia? And how much lower is that than the total kilowatt hour growth number that you cited? And as you're looking to execute on this plan, how -- are there any limitations with supply chains that could constrain growth opportunities via the IRP process?

Ryan Levine:

Okay. Thanks for taking my questions.

Operator:

Thank you. Our next question is from the line of Paul Patterson with Glenrock Associates. Please go ahead. Your line is open.

Paul Patterson:

Hi. Good afternoon. Congratulations on this these opportunities that you guys have. Just with respect to the data center stuff, I mean, a; you did indicate in your prepared remarks, it seemed that this was based on actual activity, physical construction activity, et cetera. Is it correct to assume that these guys -- these data centers, et cetera, have a price in mind? I mean, they wouldn't be doing this. I mean, obviously, they're using a large amount of electricity. It's part of the economics of their determination to move that this -- that they know how much they're going to be essentially paying for power if they're doing this, correct?

Paul Patterson:

Okay. In some jurisdictions, because they have their own backup power, because they have to be there in case there is an outage or something, they have to get approval from regulatory commissions, their respective state regulatory commissions. Is that the case in Georgia?

Dan Tucker:

Yeah, there's some customer-sided programs that have been proposed in the IRP, Paul, that those are being evaluated and those serve the same purpose, but it's not the dynamic that you're describing in those other states.

Chris Womack:

I don't think so. I think we may be better informed as we bring some more projects online. Right now, I think -- I don't think that would be the case. And plus it could be trade secrets as well, so.

Dan Tucker:

Yes. It's fairly ratable, Paul. It's obviously not perfectly linear by any means. But that -- the significant load really begins to come in, in, say, late 2025 and into 2026, which is why a lot of the resource proposals you see at Georgia Power are to really serve the 2026-2027 winter peak to make sure they're in place for that, and then it continues to grow from there.

Chris Womack:

Thank you.

Operator:

Thank you. And that will conclude today's question-and-answer session. Sir, are there any closing remarks?

Operator:

Thank you, sir. Ladies and gentlemen, this concludes the Southern Company fourth quarter 2023 earnings call. You may now disconnect. Have a good day.

Scott Gammill:

Thank you, Dina. Good afternoon, and welcome to The Southern Company's Third Quarter 2023 Earnings Call. Joining me today are Chris Womack, President and Chief Executive Officer of The Southern Company; and Dan Tucker, Chief Financial Officer. Let me remind you we'll be making 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, Form 10-Q and subsequent filings. In addition, we'll present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I'll turn the call over to Chris.

Dan Tucker:

Thanks, Chris, and good afternoon, everyone. For the third quarter of 2023, our adjusted earnings were $1.42 per share, $0.12 higher than our estimate -- $0.11 higher than last year. The primary drivers of our performance compared to last year were warmer than normal weather conditions, changes in rates and pricing and lower income taxes and O&M expenses, somewhat offset by higher depreciation and amortization. For the nine months ended September 30, 2023, our adjusted earnings per share were $3.01 compared to adjusted earnings per share of $3.35 for the same period in 2022. A detailed reconciliation of our reported and adjusted results as compared to 2022 is included in today's release and earnings package. For the nine months ended September 30, 2023, adjusted earnings per share are $0.34 below the same period a year ago, with the extremely mild weather conditions we experienced in the Southeast during the first six months of 2023, representing a major factor in how this year has developed. While weather conditions continue to present risk to our fourth quarter results, we project to achieve our full year adjusted earnings near the middle of our guidance range of $3.55 to $3.65 per share. Our adjusted estimate for the fourth quarter is $0.59 per share, which implies an estimated full year result of $3.60 on an adjusted basis. Turning now to electricity sales in the economy, year-to-date 2023 weather-normal retail electricity sales were approximately 0.5% lower than sales levels for the first nine months of 2022. Year-to-date, we have added approximately 35,000 electric customers and 19,000 gas customers, trends which continue to outpace pre-pandemic levels. Strong commercial usage was offset by a return to office dynamic and residential sales as the relationship between these two customer groups appears to have largely reached pre-pandemic status. Lower industrial sales continued to be driven by weakness in the chemical, paper and housing-related sectors. More broadly, our service territories are in a period of industrial transition particularly as it pertains to manufacturing. Historically, significant industries such as paper and chemicals are making way for the manufacturing of solar panels, batteries, airplanes and electric automobiles. As Chris mentioned earlier, during 2023, we have continued to see an extraordinary level of economic development activity within our service territories. While we will provide formal updates to our outlook during our fourth quarter earnings call in February, we did want to highlight the magnitude of potential change we are seeing in electricity sales growth. Recall, our previous forecast assumed annual electricity sales growth of 0% to 1%. Factoring in the power needs of these new, highly data-centric businesses and manufacturing facilities, electricity sales are likely to have an annual growth rate closer to a mid- to high single-digit range over the next five years. While there is likely to be significant incremental capital investment required to serve this level of economic development activity, we expect both existing and new customers to recognize economic benefits from this growth. Chris, I'll now turn the call back over to you.

Operator:

[Operator Instructions] Our first question is coming from the line of Carly Davenport with Goldman Sachs. Please go ahead.

Chris Womack:

Carly, again, thanks for your questions. We look at the pumps at Unit 3, I mean, the four pumps are running as designed. And as we've seen this from Sanmen in China, so we've seen this experience in terms of replacement. So, we think we have a good path to replacing the pump. And so, we just feel good about the process that we've identified that is in place for removal and then replacing the spare pump. So, we feel very confident about the process and where we are with the pump replacement process at this time.

Dan Tucker:

Yes, Carly, it's a great question. And look, just order of magnitude, we'll provide specific guidance in February. But I think as we sit here today on the very front end of this IRP update process, we do see pretty substantial potential increases. And potentially, we're talking billions of dollars where our current five-year plan for capital is $43 billion. I think we easily see a plan that translates to something north of $45 billion, and it's really a question of how much higher than $45 billion once we get to February and kind of lay that out. And I say all that continuing to be conservative about including any owned renewables. We absolutely across all of our electric service territories expect to own renewables over the forecast horizon. But we're going to wait until there's better line of sight on those individual projects to include those. So getting to your question in terms of financing, we've been very clear about our credit objectives. And I think our profile is positioned to be differentiated, and it's our objective over the long term to preserve that differentiated profile. And so that will mean the potential for maybe turning on our equity plans. We're fortunate to have one of the largest, if not the largest drips in the industry. We can generate between $350 million and $400 million a year just through those. And then we always keep on the shelf and at the market program just to have flexibility. So, we will absolutely do what we need to do to preserve the credit profile in terms of the balance of how that's financed. I think it's still a fraction of any incremental capital that translates to equity. Again, I mentioned billions of capital and hundreds of millions of potential equity through the drip. I think that will be sufficient to maintain where we want to be.

Dan Tucker:

I think where we sit today, Carly, just kind of on an unadjusted basis, if you will, so not trying to factor in equity credit or content for any particular securities. We're a little south just of 30% overall. I think as the business grows, we don't really intend to grow that percentage. So, the absolute quantum of debt may increase over time, but the proportion of parent debt to the rest of our debt will remain about the same, I think.

Shar Pourreza:

Just a quick follow-up from the prior question. I guess, the opportunity set is pretty material, Dan, you're obviously highlighting it could be in the billions. I guess, how do we think about that opportunity set in relation to your 5% to 7%? So is this a scenario where it's accretive to growth or could be accretive to growth? Or is this sort of an extended runway scenario?

Chris Womack:

And Shar, one thing I'd add. I mean, you know us very well, you know our process. I mean we will kind of give you that '24 guidance in February of next year. I mean, so now we are looking at the headwinds, the tailwinds kind of where we are in terms of -- I mean, the cards that we have and what's in front of us, and we'll update and give you that guidance in '24. But I'd tell you, I mean, on the iconic development front, there are just a lot of exciting opportunities. We've got headwinds of interest rates, but we look forward to giving you that update in our call in '24 in February.

Dan Tucker:

Yes. Look, Shar, just like we did this year, we're going to kind of be thoughtful, creative, somewhat aggressive in terms of how we manage that. You saw us do the convert earlier this year that really mitigated the interest impact. We'll do everything kind of at our disposal to execute in a way that keeps rates as low as possible. I think what everyone is likely stepping back in the industry and saying is, look, we all knew interest rates were higher, and this sense of higher for longer as you sit here today, it's probably the longer piece that we all thought was perhaps not as long as what we're seeing as we sit here. But I think it's all consistent. And for us, kind of mitigated by this tremendous windfall of economic development activity we have. In terms of sensitivities, look, if you think about kind of a 50 basis point sensitivity around interest rates as we move forward, think with every incremental year, it's basically another an incremental penny of potential EPS plus or minus for that 50 basis points of interest rate sensitivity. And we're not interest rate forecasters. We're just basically using kind of public forecasts that are out there in terms of our planning.

Operator:

Our next question is coming from the line of David Arcaro with Morgan Stanley. Please go ahead.

Chris Womack:

I think as we lay out the plan and what the needs are, probably in the '26 time frame, I think, we'll see some of this play out could be as late as '25. I mean as plants begin and they've got to be constructed. They've got to go online. So yes, we look at late '25, the early '26 time frame. I think before you will see this kind of show up in those increased sales?

David Arcaro:

Yes, got it. That's helpful color and context there. And then -- was just wondering if you could maybe elaborate a little bit on the pump issue on Unit 4. Does this look -- are there any indications that it could be a design issue with the pumps has this happened at other AP1000 units? Or does this look like it could just be a one-off here?

Operator:

Our next question is coming from the line of Julian Dumoulin-Smith with Bank of America. Please go ahead.

Dan Tucker:

It's upside to the upside, Julien. So again, and I mentioned this earlier, we're going to continue to be conservative on owned renewables that we absolutely have an expectation that will become part of the mix we're not going to forecast it until we have better line of sight on individual projects. And in Alabama, those will largely be tied to individual customer stories. When it comes to this economic development activity, while I think kind of the tip of the spear sit here today is what's happening in Georgia, there's a lot of momentum across the rest of our electric service territory for opportunities like this.

Dan Tucker:

Yes. So on the first part, Julien, in terms of the mix of ownership -- and this is going to be true for all of our electric service territories. It will be a mix. We expect to own a meaningful amount, but there is likely to be third-party PPAs in the mix here, just like there has historically. So, that's the reason we're not including anything forecast. We don't want to be presumptuous as to exactly what that mix is. We just know or we have an expectation it will be meaningful. On the -- I'm sorry, what was the second question again, Julien?

Dan Tucker:

Yes. I would call it flat, Julian. So, it's flat over the long term. Our credit quality is a buffer against adversity that we have no desire to consume nor do we have -- or are we positioned where we've got to kind of over equitize incremental growth. It is a flat long-term objective.

Operator:

Our next question is coming from the line of Durgesh Chopra with Evercore ISI. Please go ahead.

Chris Womack:

Let me start by saying I mean, I think we -- as I said earlier, I mean, that is the things you've mentioned, that's part of the process we're in the middle of now that will lead us to February when we give you our '24 guidance, but assessing the tailwinds that we are really excited about from economic development activities to the headwinds of interest rates. I mean that will all go into the calculus to the process of us kind of coming forth in February with our guidance for '24. But I think it's just a tab bit premature. And you've seen us in terms of how we do this. But we don't give you any kind of indication or guidance at this point in time. We'll do that in February of '24.

Durgesh Evercore:

Okay. I tried it at least.

Durgesh Evercore:

Just maybe then just shifting back to discussion to the CapEx upside. How much -- so obviously, billions of dollars, would you think of customer bill impacts. I guess where I'm going with this is there's a pretty sizable load growth forecast that you were suggesting mid- to high single digits what percentage of that CapEx you think would go towards or the return would be satisfied by the slowed forecast versus increasing rates, if you could talk to that a bit.

Operator:

Our next question is coming from the line of Andrew Weisel with Scotiabank. Please go ahead.

Dan Tucker:

So, we didn't really update the year-end three months ago. Again, just as that same discipline, we only address year-end on our third quarter call. And so it's the first time we're really refining it. It's really about the first half of the year. Yes, we had a better-than-expected third quarter, but the headwinds of weather in the first half were pretty substantial. And that's why we're $0.34 below last year on a year-to-date basis. And so that's the biggest driver of kind of the middle of guidance expectations at the end of the year. Now I say all that, Andrew, I mean, again, we put out quarterly estimates all the time, and I kind of challenge you to go back and find a time where we didn't exceed that. So that should help with where our expectations are.

Chris Womack:

Let me take a shot at a couple of things. And first of all, we never get ahead of our regulators. Secondly, I'd say as we were going through the '22 IRP process, we did socialize and bring forth to the commission the activity that we saw occurring that there was a likelihood that there would need to be some update filing in between the three-year cycle. So this is not necessarily a surprise. We did mention that this would, in fact, be forthcoming. But yes, so we will go through the process, and hopefully, we'll get a decision sometime by April of '24 with this updated IRP. And what was the second part of your question?

Chris Womack:

As you look at this need that is there, that there is the likelihood that we would need some traditional units a little longer. Meaning, I think as we look at units that may have been scheduled to retire in '28, we may look to take them into the 30s. So that is a possibility as we look to respond to this growing demand for our customers.

Andrew Weisel:

Okay. And just to clarify that you're requesting a decision in April. Does that mean the CapEx update in February will not reflect anything related to this that will wait until February of 2025 ?

Chris Womack:

Yes. And the scheduling order has not been established but we expect a similar process to the traditional integrated resource planning process. And so that would align with a decision sometime in the April time frame of '24.

Jeremy Tonet:

For those of us out of state, I was just hoping you could provide some in-state perspective with regards to Georgia and elections and the latest and what's happening there with regards to litigation and potential for these elections. What are the next steps forward here? When could these materialize? Just any thoughts on that and any implications that could mean for Southern down the road?

Jeremy Tonet:

Got it. I mean would you expect those two elections to be held in '24 or just can't really tell too much at this point.

Jeremy Tonet:

Fair enough. Fair enough. And then switching gears here, natural gas clearly a key component to the energy mix, as you talked about earlier. Just wondering, it's not as easy to build a natural gas pipeline as it was at points in the past to supply into the state. I'm just wondering where nat gas that you see incremental supply coming from? Is this MVP? Is this other sources? Or just how do you see that dynamic at this point?

Jeremy Tonet:

Got it. Fair enough. And one last one, if I could. Just be it related to Vogtle or otherwise, just wondering how could green hydrogen play into the IRP and your view? Any plans to test that out as a power plant fuel?

Operator:

Our next question is coming from the line of Angie Storozynski with Seaport. Please go ahead.

Dan Tucker:

Yes. Great question, Angie, because it had been a while since we've done anything at Southern Power and really what changed was the IRA. So, we had stopped doing solar projects kind of middle of the last decade. We did a lot through 2015 through 2016 and then didn't do any sense because we didn't like the profile of investment tax credits for solar projects. The PTC is something that matches much better our regular, predictable, sustainable earnings profile and that the IRA kind of unlocked a lot of development activity on the solar front. And so the opportunity set was really big, and we narrowed it down to a couple of projects here recently that fit the kind of criteria we look for. Look, again, just to reiterate for everyone what we do at Southern Power, it's long-term contracts, it's creditworthy counterparties. It's returns that are better overall from an equity perspective than our regulated business, and it fits our overall profile. Southern Power is balance sheet financed, right? In of itself is a BBB+ company, and it's an important. If you think about the bulk of Southern Power, the rest of it, the natural gas fleet you think about what's happening with capacity needs in the Southeast, that business has become something of a crown jewel in the Southeast because it is one of the best providers of reliable, dispatchable capacity in the Southeast. So it's a business that's important to us, and these were two great opportunities to grow it.

Dan Tucker:

This is not a credit play, Angie, that 0%.

Chris Womack:

No, Angie, I wouldn't read anything more than that. I mean you've had a number of individual leadership there who have put 40 years of service in that have chosen to retire, and then the opportunity to bring in and bring in some new talent. I think that helps the overall team. But as you know, we pay a lot of attention to succession planning. And we do a lot of work internally in terms of growing our teams. But I think we're also wise enough to know when we can also go invest in some talent from the outside to bring in to our team and makes our overall team better. So I wouldn't read anything more to it than just the reality of a couple of individuals deciding to retire and us moving some people around.

Operator:

And our last question for today is coming from the line of Travis Miller with Morningstar. Please go ahead.

Dan Tucker:

Yes. Look, there's always a toolbox. I would argue our toolbox is a lot smaller than it used to be when it comes to alternative sources of capital. We did a lot of work over the last several years to kind of hone this portfolio of companies to something that really fits and that we feel really good about. So are there some small opportunities? Yes. But do we have any for sale sign sitting out there right now? No?

Dan Tucker:

Yes. I think it's primarily just working our way down to a sustainable payout ratio, right? So if you think about where our guidance sits here in 2023, our payout is going to be something like 77% for 2023. That's not a sustainable payout ratio for a growing company. Now that's largely a function of the ROEs we've been earning at Georgia Power during construction of Vogtle 3 and 4. As that rolls off, that payout ratio will begin to come down, but we just need to get it somewhere comfortably into something that probably starts with a six in order to start evaluating a higher growth rate.

Chris Womack:

Again, thank you, everyone, for joining us today. We really appreciate your interest in Southern Company. And we look forward to seeing many of you very, very soon. In the meantime, if you have questions, please give us a call. But again, thank you very much for joining us today.

Scott Gammill:

Thank you, Tommy. Good afternoon and welcome to Southern Company’s second quarter 2023 earnings call. Joining me today are Chris Womack, President and Chief Executive Officer of Southern Company, and Dan Tucker, Chief Financial Officer. Let me remind you, we’ll be making 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, Form 10-Q, and subsequent filings. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning, as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I’ll turn the call over to Chris Womack.

Dan Tucker:

Thanks Chris and good afternoon everyone. For the second quarter of 2023, our adjusted earnings were $0.79 per share $0.04 higher than our estimate and $0.28 lower than last year. The primary drivers of our performance compared to last year were milder than normal weather conditions, higher depreciation and amortization and interest expense and changes in rates and pricing, somewhat offset by lower income taxes and O&M expenses. A detailed reconciliation of our reported and adjusted results as compared to 2022 and is included in today's release and earnings package. Weather in our electric service territories during the first half of 2023 has been the mildest on record with the fewest aggregate degree days in the 129-year history of climate data reported by the National Oceanic and Atmospheric Administration, more commonly known as NOA. The negative $0.16 per share EPS impact relative to our weather normal EPS guidance range is our largest ever negative weather-driven variance for the first six months of a year which is a significant headwind for the full year. While 2022 was a year in which we were able to fix the roof while the sun is shining and position the company well coming into 2023. We have been and will remain keenly focused on cost management, along with our constant focus on safety, reliability and customer satisfaction in the second half of this year. Our adjusted earnings estimate for the third quarter of 2023 is $1.30 per share. Turning now to retail sales in the economy. Year-to-date 2023, Weather-normal retail sales were in line with sales levels for the first half of 2022. We've seen positive residential and commercial growth and strong commercial usage offset by lower industrial sales. Year-to-date, we've added nearly 24,000 electric customers and 13,000 natural gas customers, trends which continue to outpace pre-pandemic levels. Chris, I'll now turn the call back over to you.

Operator:

Thank you very much. And we'll proceed with our first question on the line is from Shahriar Pourreza, Guggenheim Partners. Please go ahead.

Shahriar Pourreza:

Good morning. Chris, that was the world record for the fastest prepared remarks. So, congrats here on that one.

Shahriar Pourreza:

Just starting on George's economic backdrop. And obviously, you guys have seen a step change in the pace that major industrial customers have been announcing new capacity needs. How many, I guess, new gigawatts are you seeing now in Georgia versus the prior update with the state? What is the prior IRP embed? How should we sort of think about any updates to capacity needs, including the viability of the remaining coal assets as you're thinking about this incremental demand. So could we see a drastically different IRP being filed? Thanks.

Dan Tucker:

Look, again, we're kind of going through the analysis, but it's fair to say what we've seen from economic development announcement perspective in the past is hundreds of megawatts at a maximum in a given year. And now we're having instances where it's thousands potentially in terms of the announcements. And so just the pace has accelerated. And you mentioned industrial, there's certainly a lot of large industrials involved with that, particularly around the electric transportation sector. but it's also data centers. It's a story that's playing out in a lot of places. Just as an example for ours. I mean, as we sit here today, data centers are roughly 2.5% of our overall electric load Five years from now, that will be well into the double digits in terms of percentage of our load. That's the pace of growth we're seeing.

Shahriar Pourreza:

Do you have a sense, Chris, on when you and Cam and Dan and the team could update us around that potential opportunity. I know it's really early in the process, but we're obviously seeing the amount of customers that are moving to Texas, and it's very material. So, I mean, to Georgia, which is really material. So, I'm just kind of curious on what the time?

Shahriar Pourreza:

Okay, perfect. And then lastly, Chris, we're obviously approaching the prudency case once we see Unit 4 fuel load. Anything you can provide and how we should be thinking about a potential settlement, or should we be thinking about like a rate case? And whether the potential for like a special election could impact the process, if at all, especially if fuel load takes long to the plan.

Shahriar Pourreza:

Okay. Perfect. Thank you, Chris and Dan. Very helpful. I appreciate it and congrats.

Operator:

And we'll get to our next question on the line. It is from Carly Davenport with Goldman Sachs. Please go ahead.

Carly Davenport:

Doing well. Thanks so much for taking the questions today. I appreciate it. Maybe just starting in terms of what we saw during the quarter for weather-normalized demand a little bit weaker on the industrial side, but commercial still looks quite strong. Can you just talk about how things are evolving relative to your forecast and kind of how you could see that evolving as we continue to move through the year?

Carly Davenport:

Got it. That's super helpful. Thank you. And then maybe just on the financing front in the context of the current rate environment. Just you've got some financing kind of still outstanding for the rest of this year. Just how are you thinking about execution of the plan that you have as we move through 2023?

Carly Davenport:

Appreciate the color. Thank you.

Operator:

And we'll get to our next question on the line. It is from Julien Dumoulin-Smith, Bank of America. Go right ahead.

Julien Dumoulin-Smith:

Thanks for the time. Great. Thanks so much. Really appreciate it. Hey look, just coming back to the other subject here on procurement and renewables -- on the renewables front. I know we talked about this last quarter here. Curious to hear your latest thoughts, both on the utility side and ownership think that had always been kind of back half of this year. How is that looking on that front in Georgia? And then separately, I think, Dan, last time we connected here, you were talking about the Southern Power effort looking like it was a tad more competitive in this environment. in terms of your ability to actually win and accrue projects from that side of the house. Do you want to talk about some of the progress and maybe the evolution just with the rate environment where it is?

Dan Tucker:

Well, I think the other question was around Southern Power and yes, Julian, the same continues to hold true. The radar screen of active, viable opportunities for Southern Power is as strong as it's ever been. And look, we fully expect to be able to continue to deploy capital in the right way there. We'll keep the same discipline we've always had in terms of the hurdles we look for, the risk profile, long-term contracts, creditworthy counterparty, but I think my short message there on Southern Power would just be stay tuned. There's good things happening.

Julien Dumoulin-Smith:

Got it. Excellent. And then just as you think about the generation needs that the prior questioners have been really kind of poking at here, aligned with, as you alluded to a second ago, the added ability to own some of this renewable generation through utility tax credit optimization, if you will. Can you talk about that opportunity coming together and maybe specifically the time line that you could see that starting to play itself out? I know we just alluded to the prior IRP cycle, but getting the CapEx proposals, RFPs and ultimately just seeing that load forecast updated?

Dan Tucker:

Yes. As we've said before, consistent with what Chris just said, this will come together from a plan and capital deployment perspective in the latter part of our forecast horizon. So it was not a 2023 thing in terms of capital deployment might but probably not a meaningful 2024 -- but beyond that is where the real opportunity exists. And the other thing that's coming together to help drive this. And I think you mentioned the economic development aspect, Julian, as all these customers are choosing to locate in our service territories, they are increasingly demanding to be served with renewable generation, and that's just helping support everything we're trying to do.

Chris Womack:

All right, Julian.

Chris Womack:

Hey Jeremy.

Chris Womack:

And Jeremy, one of the things we've commented for -- we set a prior for a few years now that there would be lessons learned as we transfer over from unit 3 to unit 4. Let me just give you some examples of how that is playing out. On Unit 3 hot functional testing took 94 days on Unit 4. It took 88 days. It move forward from 94 -- took 42 days. Hot functional testing to complete to 103G was 371 days on Unit 3, 88 days on Unit 4. And from coal hydro, to hot functional test start was 191 days on Unit 3 to 103 days on Unit 4. So, I think you're seeing clear examples of how lessons are being learned from Unit 3 over Unit 4. And that that work -- those lessons learned will continue, I think, to show itself as we move through Unit 4.

Chris Womack:

Yes. I mean, it remanded it back to FERC to clarify a couple of issues around the power pool, and there are some questions about who is who could participate in and seeing that it has to be interconnections. So I think they're simply remanded back for clarification of a couple of issues, but nothing big there. I mean seeing continues to operate and performed very well. Everybody is very pleased with the results we've seen. So, it will be -- it's going to be remanded back to FERC, like I said, with a couple of issues that they'll clarify for seen going forward.

Chris Womack:

Let me say something quickly about hydrogen, and I'll let Dan touch on any rules from treasury. We're participating in a number of processes DOE has with hydrogen hub. So we're excited about that. As you may recall, we did a 20% blend at our Platt McDonough Gas site. So we're excited about all the technology activity and the considerations that are going on around hydrogen. We look forward to seeing if we can develop this market and get the pricing right, get the transportation of the product right and then we can find off-takers. I mean, so we're thrilled by the possibility and how Vogtle can continue to serve customers in Georgia. So there are a lot of aspects of hydrogen that we get really excited about. Clearly, there's a lot of work that's got to be -- that we've got to work through to get to that point to make it viably commercial -- commercially viable.

Q – Jeremy Tonet:

Got it. That's helpful. I leave it there. Thanks.

Operator:

And we'll get to our next question on the line is from David Arcaro with Morgan Stanley. Go ahead.

A – Daniel Tucker:

How are you, David?

A – Christopher Womack:

Once again, we're excited about the relationship that we've established with Forum. We have utilized the kind of 4- to 6-hour batteries we think a 100-megawatt -- 100-hour loan duration storage battery on 15 megawatts has got to be a part of the mix and it's got to be a part of the system and the grid going forward. So -- we're excited about what Forum is doing. We were at their ground breaking ribbon cutting up in West Virginia a month or so ago. So we are excited about Forum and looking forward to their development as we go forward. But we think this has got to be a part of the technology mix as we go forward, and we're hoping they're going to be successful. As you know, we pay a lot of attention to research and development. And we think as we look at a lot of solutions, whether it's submissions control or just making sure we maintain a reliable and resilient grid, we think technology advancement is very, very critical. And so -- we're excited about the work that form is doing, and we're glad to partner with them.

A – Christopher Womack:

Yes. I think -- and Dan said it in the conversation earlier that we'll remain keenly focused on cost management. And so we've got to correspond with that with similar focus on cost management. And so there are a number of efforts going on across the company to make sure that we are executing around cost management controls. And right now, we feel good about where we are, but we know we've got a lot more work to do as we go forward through the rest of the year.

Chris Womack:

Thank you very much.

Durgesh Chopra:

Hey, good afternoon guys. 7 minutes and 58 seconds of prepared remarks. I'll keep it real brief, hopefully. Just following up on David's question. So this quarter, we had $0.04 of unfavorable weather versus normal, but you actually delivered $0.04 higher than your estimates. Is that all just cost cuts, or are there other things that we should think about onetime or and other things?

Durgesh Chopra:

Okay, solid. And then just maybe if you can, otherwise, I'll just follow up with Scott. Just any initial takes on July weather?

Durgesh Chopra:

Okay. Thanks so much. Appreciate the time.

Nick Campanella:

Hi, everyone. Thanks for taking my question. Hope you're doing well, and congrats on the Unit 3 news.

Nick Campanella:

Yes, absolutely. So just looking forward to Unit 4 soon and then knowing that we're getting closer to that $700 million uplift that you detailed in slides here on the CFO. Dan, maybe you can just remind us your preferred use of those cash flows as you roll forward your plan in the fourth quarter. And I know we talked about improving balance sheet in the past, but I'm also cognizant you're talking up a lot of different CapEx opportunities in your region?

Nick Campanella:

All right. Thanks for that. That’s it from me today. Appreciate it.

Nick Campanella:

Thank you.

Chris Womack:

Hi, Angie. Angie, how are you?

Chris Womack:

And Angie, let me start with the first part of your question in terms of being in combat mode doing this vogtle period. I'd say we're going to stay in combat mode in terms of execution. Yes, hopefully, we're going to be a little boring. We think boring is beautiful. But we're going to be incredibly aggressively focused on customers being at the center of everything that we do focus on the circle of life, making sure we're maintaining a constructive regulatory environment providing world-class service and using your language of in combat mode, but doing that in a very aggressive way that make sure we're giving customers what they need from a reliability, but also a resilient perspective, but also making sure we're paying attention to issues around portability. So we have a lot of work to do. And so we're going to be very singly focused on execution. And I think that's going to be very important as we also make the case that we deserve that premium valuation and returning back to the days of old Southern classic.

Angie Storozynski:

Okay. And then just maybe a smaller point, but you guys have, just like everybody else, more violent and impact storms going through your service territory. Is there anything from one investment perspective to regulatory setup that could help you, you know, hardening the grid and also assure timely recovery of any costs associated with those would the climate change basically?

Angie Storozynski:

Great. Thank you.

Chris Womack:

Once again, let me thank everybody for your calls today. It's a wonderful time for Southern Company as we brought Unit 3 commercial and with the progress that we're making on unit and we'll continue to press ahead and move forward. But again, thank everybody for joining us today. Thank you very much, and everybody, be safe.

Scott Gammill :

Thank you, Kathy. Good afternoon, and welcome to Southern Company's First Quarter 2023 Earnings Call. Joining me today are Chris Womack, President of Southern Company; and Dan Tucker, Chief Financial Officer. Let me remind you, we'll be making 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, Form 10-Q and subsequent filings. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I'll turn the call over to Chris Womack.

Daniel Tucker :

Thanks, Chris, and good afternoon, everyone. For the first quarter of 2023, our adjusted EPS was $0.79 per share, $0.18 lower than the first quarter of 2022 and $0.09 above our estimate. The major driver for the variance to last year was milder-than-normal weather as the first quarter of 2023 was the warmest on record in the Southeast. Higher depreciation and amortization and interest expense also impacted earnings for the first quarter compared to last year and were somewhat offset by constructive state regulatory actions. A complete reconciliation of our year-over-year earnings is included in the materials we released this morning. When looking at adjusted EPS impact compared to our estimate for the quarter, the main drivers were a strong start for our state regulated natural gas utilities and continued strong electric and gas customer growth. Given the mid-February timing of our last earnings call, we were able to factor milder than normal January and February weather into our estimate for the quarter, so weather was not a major driver of our performance versus our estimate. You may recall that our adjusted earnings in the first half of 2022 were significantly better than projected due to weather and other market-driven factors. Our early 2022 outperformance supported our full year adjusted EPS performance and enabled us to accelerate maintenance activities in several areas of the business. Those initiatives had us well positioned with additional spending flexibility entering 2023, such that we expect the significant weather impact we experienced in January and February should be manageable over the remainder of the year, assuming a return to more normal weather throughout the balance of the year. Turning now to retail sales in the economy. In the first quarter, weather-normal electric retail sales were 0.4% higher than the first quarter of 2022. This increase reflects stronger residential and commercial sales from continued robust net in migration to our service territories, a strong labor market and a return to more normal business trends. Industrial sales for the quarter were down 1.6% as we are beginning to see weakness in housing-related sectors, such as stone clay and glass, lumber and textiles due to inflationary pressures and higher interest rates. Half of the industrial variance for the quarter compared to last year can be attributed to the closure of a caustic soda manufacturing facility in Alabama. Excluding the impact of this single customer, industrial sales were down approximately 0.8%. In a trend that continues to differentiate our Southeast service territories from many other areas of the country, we once again saw record levels of economic development activity with job creation and capital investment announcements at all-time highs in the first quarter. We are beginning to see supplier announcements related to the Rivian and Hyundai electric vehicle manufacturing facilities in Georgia, with 6 supplier announcements made during the quarter, totaling over 4,200 jobs and nearly $2 billion in capital investment. We expect additional automotive supplier announcements in the coming months. Beyond the automotive industry, QCells recently announced a new $2 billion solar panel and component manufacturing facility in Georgia, which is expected to create 2,000 jobs. Additionally, the Port of Savannah continues to set records, posting its highest national market share ever and second busiest February on record. The port continues to expand capacity, including the recent announcement of the addition of 55 electric cranes, which are expected to eliminate 500,000 gallons of diesel consumption and related emissions per year. Before I turn the call back over to Chris, I'd like to call your attention to our recent dividend increase. At its last meeting, Southern Company Board of Directors approved an $0.08 per share increase in our common dividend, raising our annualized rate to $2.80 per share. This action marks our 22nd consecutive annual increase and for 76 consecutive years, dating all the way back to 1948, Southern Company has paid a dividend that was equal to or greater than the previous year. This remarkable track record supports Southern Company's value proposition. And lastly for me, our adjusted EPS estimate for the second quarter is $0.75 per share. Chris, I'll turn it back over to you.

Operator:

[Operator Instructions] And our first question comes from the line of Steve Fleishman with Wolf Research.

Christopher Womack :

It is scheduled to come as we enter fuel load on Unit 4. Right now, we're looking to -- for unit -- for fuel load to occur in the July time frame. So we're working -- we'll work with the commission and the staff on moving through that process. But it will get started as we enter fuel load on Unit 4.

Christopher Womack :

We expect yes, 6 months. It's the time frame we expect today.

Christopher Womack :

And Steve, I think as you've seen before, things do come up. I would say testing has gone very well. We've experienced some trips and the systems operated as they should, but we worked our way through it. And -- but we continue to proceed and move ahead. So, so far, so good, but we know there's -- first time start-up, there's always issues. This is why we test, and we're focused on the secondary side. But I'd say so far, so good, but we continue to -- testing is always a process that we'll go through to make sure we're ready for commercial operation.

Shar Pourreza :

Chris, you guys recently just around the '24 guidance, you kind of lowered it on the back of ongoing inflation and interest rates. I guess how are you seeing things develop now? And do you see kind of opportunities to manage your exposure like we saw with the prior convertible note you issued in February got a bit of a better sales outlook today. I guess what are some of the pushes and takes since you revised that '23 guide? It seems like there's some incremental tailwinds here.

Shar Pourreza :

'24.

Daniel Tucker :

Yes. And just following on to what Chris said, once we have clarity, which again will be the end of this year, early next year on Unit 4, we'll narrow that 2024 guidance down to something that's more akin to what we typically do, around a $0.10 range or so based on the actual in-service date. All the other moving parts you mentioned, Shar, I mean, we kind of are where we were -- we are executing in a way to make sure that we're managing where we need to. We'll continue to be creative and thoughtful around how we're financing, particularly at the parent company. I think the convertible deal was a tremendous success. We'll see what other opportunities we have, not necessarily that specific instrument, but just to be opportunistic in the way we do that. And then from a cost perspective, everyone is seeing pressures, and we are no different. But we've got a lot of efforts underway to make sure that we're running the business as efficiently as we can in a way that continues to support that guidance range.

Christopher Womack :

Yes. And Shar, I would say it's a wonderful question I'd build on what Dan has said. I mean, we will continue to look at how we can run this business more efficiently. I mean there are opportunities to create shared service opportunity to find efficiencies in places, we will do that. As you know, there's a lot of conversation and interest in, and we take it very soon to the issue of affordability. And so we will continue to find ways to put downward pressure on our pricing, find ways to look at the interest rate and inflation implications, but look to find ways to make sure, from O&M perspective, that is either flat or declining over our forecast period. So we will continue to do that and pursue those kind of opportunities. And we've done it in the past, and we'll continue to do it in the future.

Operator:

And our next question comes from the line of Ross Fowler with UBS.

Daniel Tucker :

Yes, not in terms of getting back, but just in terms of making those comparisons year-over-year, Ross, I think the other important moving part that we saw in the first half of last year that really helped us get up to that strong start was earnings that were really driven by where energy prices were. So not only on our regulated side, we had some commercial industrial pricing that benefited from that, but also on the Southern Power side got off to a great start just because of where market energy prices where and it allowed us to do a lot of those things. So when you're doing a year-over-year comparison, that will be a difference. Big thing that you brought up that's just not as obvious always looking at this is the kind of rebates or refunds back to customers' notion. That was a significant element of the second half of last year if you combine all of our jurisdictions in terms of either what was accrued to refund back to customers or what was put into regulatory reserves, so we have the reliability reserves in some of our jurisdictions. That was $0.33 just in the fourth quarter. And so that's a pretty significant year-over-year reconciling item that will necessarily be there this year, but we'll still be able to support that $3.60 as a midpoint.

Daniel Tucker :

Yes. Still, and I want Chris to kind of add on to this. But just from an overall sales perspective, still seeing year-over-year growth in a lot of sectors. There is a bit of slowing going on, but the overall strength here in the Southeast continues to show itself. Chris, do you want to add anything there?

Ross Fowler :

That's great, Chris. And maybe this is an unfair question, but I'm going to pose it anyway. How do you think about -- I mean, you've seen in the press this week an EPA power plant rule potentially coming around natural gas and emissions reductions. How do you think about that in terms of sustainability achievement versus affordability and reliability because natural gas is definitely needed for both of those things as we walk through the energy transition? What are the risks and opportunities around that type of regulation?

Operator:

And our next question comes from the line of Julien Dumoulin-Smith with Bank of America.

Daniel Tucker :

Yes, Julien, it's Dan. So look, with -- once Unit 3 and 4 is in service, reflected in rates from a cash flow perspective, and we've talked about this before, it's about a $700 million improvement in our operating cash flow and thus improvement in FFO from an FFO to debt perspective, what that means is given the rest of our business, combined with that improvement, we should be comfortably in a let's just call it, 7-ish zone from an FFO to debt. It could be as high as 18 in years, could be in the high 16s, but comfortably above certainly current rating thresholds. And what I've continued to articulate as an objective to have all of our regulated utilities in the A category and our parent company at BBB+. And I think we can achieve that without having to do anything but execute.

Daniel Tucker :

Absolutely.

Christopher Womack :

Yes. And Julien, as you know, we have opportunity as a result of the 2022 integrated resource plan, but also with the, inflation reduction act, we think as a level of the playing fields between -- from tax policy, it offers us the opportunity to own renewables ourselves. And so our teams are looking at the opportunities, and we'll be working with the commissions to pursue those opportunities for us to build and own more renewables as we go forward, taking advantage of the opportunities that the inflation Reduction Act affords us. And the opportunity we have is not just looking at the lease cost, but also -- but who's the best cost owner of these projects going forward. So it's a wonderful opportunity for us. But also, I think, as you mentioned, there're also opportunities for Southern Power as we go forward. So there are wonderful opportunities for us as we go forward, and we're looking forward to fully investigating and executing around them.

Christopher Womack :

We'll keep you posted.

David Arcaro :

A couple of quick questions on the Vogtle units. I was wondering when would we expect Unit 3 to be running at full capacity? We've seen it ramping up and down, getting to 50% power. Wondering when we might see it at full capacity. And then just on that Unit 2, have the -- I think you touched on this before, but has the testing and running so far been going smoothly enough to not push out any like incremental delays within the May to June time frame?

David Arcaro :

Okay. Got you. And then on Unit 4, just during hot functional, I guess, similar question. Have you seen any issues pop up during that testing phase that would add incremental time even within the 4Q to 1Q 2024 window?

Operator:

Our next question comes from the line of Durgesh Chopra with Evercore ISI. Q - Durgesh Chopra Just first, Chris, you talked about the maintenance outage at Unit 3. I just want to confirm that's just standard process, right? That's not an added step based on...

Durgesh Chopra :

No, that's it. Please go ahead.

Durgesh Chopra :

Perfect. Thank you for clarifying that. And then maybe I can just pivot to the Georgia Power under-recovered fuel filing. I believe you made that in February. Just any initial stakeholder feedback there I know in the last call, we talked about perhaps offsetting some of that balance with lower gas prices going forward as we see it. Just anything you can share with us on that front would be great.

Operator:

And our next question comes from the line of Sophie Karp with KeyBanc.

Christopher Womack :

I mean, I think you kind of speak to it. But as we have success on Vogtle 3 and 4, it does give us the opportunity to unlock the fuel value of this company and kind of regain our premium valuation. And I mean, we will look at our business, and we'll look at all parts of it in terms of from a buyer and seller perspective. And the thing about it is, I say, we've got -- and we will always look our handover. We feel real good about the cards that we have. I mean we'll always do our homework, and we look at what others have extracted in the marketplace. But we'll also look and see some things we can do better. We don't have any equity needs. I mean we're in a very, very good spot. And so I just think it's an opportunity for us to really unlock full value and the full potential of this company as we go forward.

Agnieszka Storozynski :

So I'll ask a bit for question. So we actually be willing to acquire some assets now that you have seemingly a clean slate. You mentioned you have no equity needs. You have a strongly improving cash flow, and there are assets available for sale. For now, the way we look at you guys, you've basically sold for roughly the sector average earnings growth, which I cannot believe that you would be happy with.

Operator:

Our next question comes from the line of Ashar Khan with Verition.

Operator:

That will conclude today's question-and-answer session. Sir, are there any closing remarks?

Operator:

Thank you, sir. Ladies and gentlemen, this concludes the Southern Company First Quarter 2023 Earnings Call. You may now disconnect. Have a great day.

Scott Gammill:

Thank you, Scott. Good afternoon, and welcome to Southern Company's year-end 2022 Earnings Call. Joining me today are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company; and Dan Tucker, Chief Financial Officer. In addition, Georgia Power's CEO, Chris Womack, who will be succeeding Tom as President and CEO in the coming months is also joining us. Let me remind you, we'll be making 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, Form 10-Qs and subsequent filings. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I'll turn the call over to Tom Fanning.

Dan Tucker:

Thanks, Tom, and good afternoon, everyone. As Tom mentioned, we had strong financial results for the year with adjusted earnings of $3.60 per share, $0.19 higher than 2021. The primary drivers for the year-over-year increase are higher revenues associated with retail pricing, warmer weather, primarily in the second quarter of 2022, customer growth, increased usage and investment on our regulated utilities. These revenue effects were partially offset by higher non-fuel O&M expenses and higher interest expenses. The increase in non-fuel O&M reflects long-term commitments to our regulated utilities to reliability and resiliency, along with efforts to advance maintenance activities in light of emerging cost pressures. Additional shares from the mandatory conversion of our equity units in August '22 are also reflected in 2022 EPS results. A detailed reconciliation of our reported and 2022 and back above pre-pandemic levels, we continue to see robust residential growth with the addition of nearly 50,000 residential electric customers and over 30,000 residential gas customers throughout the year. Residential customer usage also continued to outpace our expectations, reflecting sustained hybrid work practices across our service territories. Additionally, commercial sales for 2022 beat our forecast by nearly 2%, reflecting a reversion to pre-pandemic trends as the economy shifts from consuming goods to services. Industrial sales for 2022 were lower than forecast by 1.5%, driven by a chemical facility closure and weakening industrial sales momentum during the second half of the year. With interest rates rising, we have seen slowing in construction and housing-related sectors, such as lumber, stone, clay and glass and textiles. In the fourth quarter of 2022, eight of our top 10 industrial segments experienced slower sales growth as compared to the prior quarter. Included in our 2023 guidance is an assumption of retail electric sales growth of 0% to 1%. And as in prior quarters, we continue to monitor the potential implications of supply chain constraints, labor force participation and inflationary pressures on our outlook. The economic development pipeline in our service territories remains robust. 2022 economic development announcements in our Southeast service territories saw an increase in expected job creation and capital investment of 135% and 257%, respectively, in 2022 as compared to 2021. The pipeline of potential projects grew significantly compared to recent years with new corporate announcements and expansions representing a broad cross-section of industries, including automotive, technology, e-fulfillment and distribution, health care and bioscience. In addition to the traditional factors that have historically drawn businesses to our service territory like transportation networks, lower cost of living and business-friendly state and local policies. Another emerging trend that continues to drive momentum in both economic development wins and the size of the potential pipeline is the diversified workforce, especially technology workers and the diverse university systems in our territories, which prominently feature several HBCUs. We're proud to have been on the forefront of helping develop this workforce through our significant investment along with Apple in the Propel Center in Atlanta. More and more, as other companies strive to have their workforce reflect the diverse global customers they serve, our Southeast service territories have become a top choice for relocation or expansion. We are proud of the significant role that our subsidiaries play in attracting new businesses to our service territories. And in 2022, Site Selection Magazine named Alabama Power and Georgia Power, Top U.S. utilities for economic development for the fourth consecutive year and recognize the state of Georgia as the second best business climate in the country. Strong economic development activity continues to differentiate our Southeast service territories from other areas of the country. Turning now to our expectations for 2023. Our adjusted earnings guidance range for the year is $3.55 to $3.65 per share. Expected drivers for 2023 versus 2022, our continued growth in our state-regulated subsidiaries, including the contribution related to Vogtle Unit 3 going into service, offset by higher parent company interest expense including financing costs for Plant Vogtle Units 3 and 4 with costs in excess of $7.3 billion seemed reasonable by the Georgia PSC and share dilution, reflecting the full year impact of the mandatory conversion of our equity units in August 2022. We estimate adjusted earnings of $0.70 per share for the first quarter. Additionally, we are narrowing our 2024 adjusted guidance range of $4 to $4.30 which was established in early 2021. In order to acknowledge the uncertainty inherent in providing guidance three years in advance, the original 2024 range was wider than our typical annual EPS guidance ranges. Since this range was introduced in February 2021, our state-regulated outcomes have been largely consistent with our assumptions. Several upside opportunities inherent in the top end of our original range, like renewable and storage investment opportunities at both our state-regulated electric companies and Southern Power have been deferred to later years largely due to adverse market conditions, including more challenging, contracting requirements and global supply chain constraints. Financing costs, particularly parent company interest rates are a significant headwind relative to our forecast in early 2021. Rates on variable and short-term debt are significantly higher than expected, and as securities in our low-cost debt portfolio mature, new issuances, no matter the tenor, are significantly more expensive. Compounding these negative parent company interest rate effects are the growth in our state-regulated capital plans relative to early 2021 and the increased cost for Georgia Power share of Vogtle 3 and 4 which has grown by nearly $1.9 billion since early 2021. Collectively, these factors would narrow our $4 to $4.30 range, adjusted for 2024 to $4.10. Adding the potential for Vogtle 4 to be completed at the end of the first quarter of 2024 which would have a negative $0.05 per share impact solely in 2024, we are providing an adjusted 2024 earnings guidance range of $3.95 to $4.10 per share. We plan to further narrow this range during our fourth quarter 2023 earnings call early next year. We continue to see our long-term adjusted EPS growth rate in the 5% to 7% range, consistent with our updated 2024 adjusted EPS guidance range. This projected growth is supported by a $43 billion capital plan with 97% of total projected capital deployment over the next five years at our state-regulated utilities. Additionally, our history of constructive regulation, strong credit ratings and disciplined O&M spending served to strengthen our outlook. Our robust capital investment program continues to be driven by significant investment in our state-regulated utility businesses, our total base capital investment plan of approximately $43 billion which excludes the capital required to complete Vogtle Units 3 and 4 reflects a $2 billion increase in state-regulated utility investments relative to our previous five-year forecast. These increases in our forecast are the result of greater visibility into infrastructure required to serve major customer additions and expansions, further improve our grid and protect our technology infrastructure, as well as investments related to the transformation of our generation fleet. We have continued to maintain our disciplined approach to capital forecasting within our state regulated utility businesses. Consistent with past practice, we don't include placeholders, and we don't include capital that isn't expected to earn or allowed regulated returns. The result of this approach is that our capital expenditure forecasts tend to grow especially in the later years as our visibility into customer growth increases as regulatory processes unfold as compliance obligations evolved and as our long-term system planning is refined. We fully expect this trend to continue. Additionally, we continue to believe Southern Power has a significant opportunity to continue growing through investments that facilitate fleet transitions and the growth of clean energy infrastructure across the United States. Southern Power's business model has been distinctive since its beginnings in the early 2000s, focusing on long-term contracts with creditworthy counterparties and a risk-adjusted return profile that aligns well with our overall value proposition. We've allocated up to $3.5 billion over the five-year plan with approximately $500 million in 2023 and $750 million annually for the remainder of the forecast period. These allocations of capital are not included in our base capital forecast. Our financial plan is anchored to our base capital forecast of $43 billion. As I have already suggested, we believe upside potential exists in our state-regulated subsidiary forecast and our Southern Power allocation, which, if realized, would result in total spend of over $46 billion. We also continue to believe many of the same drivers for additional potential investment over the next five years could translate to investment opportunities beyond 2027, as we continue our journey to achieve net zero greenhouse gas emissions. We've included a three year financing plan in the appendix to today's slide deck. This plan, which is consistent with our updated capital investment plan and the potential capital investment opportunities that we have highlighted continues to assume no equity need over our five-year planning horizon. As always, we will maintain our discipline and the flexibility to use all the financing tools at our disposal to drive value for shareholders. Credit quality and strong investment-grade credit ratings remain a top priority and we continue to believe that to be a high-quality equity investment, a company must maintain a strong credit profile. As we complete Plant Vogtle Units 3 and 4, we believe the expected reduction in construction risk and the projected improvement in FFO to debt metrics further position us to support our credit quality objectives. Tom, I will now turn the call back over to you.

Chris Womack:

Thank you, Tom, and good afternoon, everyone. I cannot be more excited to have the privilege to lead Southern Company in the months and years ahead. It is an important time in our industry as the energy landscape continues to evolve and customers' needs continue to change. Southern Company is at the forefront of that evolution, and we are building the future of energy. It is an honor to lead teams that are dedicated to innovating and delivering world-class customer service and reliability to customers while also moving boldly forward in our journey to continuously represent our values and improve the communities we serve. Tom and his predecessors along with the thousands of team members across the enterprise Tom mentioned earlier have built a solid foundation for Southern Company. And we've got a lot of important work ahead of us to continue to build upon their legacy. Thank you all again for joining us this afternoon. I look forward to getting the opportunity to get out and interact more closely with each of you in the investment community during the weeks and months ahead. Operator, we are now ready to take questions.

Tom Fanning:

Shar, how are you?

Dan Tucker:

Yes. James, this is Dan. So look, we were very intentional in choosing the words consistent with our adjusted guidance range. Those words were really acknowledging of two things. Thing one is just like we did with the $4 to $4.30, will further narrow this range as we get line of sight on Unit 4 and have our fourth quarter earnings call next year. Thing two, that it acknowledges is that the $0.05 impact for Vogtle 4 potentially going into the first quarter of 2024 is a one-year effect and so the growth rate will be off of that narrowed range when we get to 2024.

James Ward:

That's very clear and that's great. Okay. So it'd be a higher base than what some people might have been reading it out. That's good to hear. Looking at your new capital plan and then assuming that some or all of the CapEx beyond the base plans are able to be added. Could you give us a bit more color on how much of that $3 billion could potentially end up at the regulated utilities versus Southern Power? And then as a follow-up, in the slides, you show the 11 different categories there, the examples of where that incremental investment could be renewables, transmission, et cetera. In your view, which of these categories are most likely to end up in the plan? What's kind of low-hanging fruit, if there is such a thing or just what is most probable and in sort of what years if we were to be building kind of an upside scenario versus a base scenario that we're trying to look at what would make the most sense to kind of prioritize there?

Dan Tucker:

Look, I think you covered it really well. The other thing I'd just reinforce, James, is that the 5% to 7% growth rate is based on our $43 billion capital plan opportunity to deploy more than that simply strengthens our position in that regard or potentially lengthens our position in that regard. And just going back to what Tom said about the longer term. Just recall, a lot of our coal retirement plans happen at the very end or the year after our five-year plan, and that really is where a lot of incremental opportunities also get unlocked.

James Ward:

Got you. That's extremely helpful and especially the color on upside there. Very much appreciated. Yes, that helps a lot. The final question for us is in the slides, you mentioned that you expect robust customer growth across your service territories will then also, of course, only expecting flat to slightly increasing retail electric sales, building on the details that you shared in the prepared remarks. Could you give us just a bit more granularity given that these are broad rather than just regionally focused on one particular area? On these broad trends, what's driving the divergence there? Or are you just taking a more conservative approach going forward to help us understand a bit more how to look at it?

Dan Tucker:

And then James, just connect that back to your previous question. Look, this growth is certainly exceeding our expectations in terms of the economic development activity, and that could very well translate to the need to invest more to serve that load that was not anticipated. So we think over the next three to five years, that will all begin to be very transparent to the market.

James Ward:

Very helpful all around, especially in framing potential upside scenarios there, which it looks like you guys might be very well positioned to head into depending on how the macro environment works out. Either way, looking forward to having Vogtle done this year, as I'm sure you and everyone else are and being able to move on to everything you've just been talking about. So it looks like great things ahead. Thanks again for taking the question. Appreciate it.

Tom Fanning:

Steve, thanks for joining us.

Tom Fanning:

Yes, sure. There were kind of three things. There were many other tests in the three things we identified. So -- you should know that we successfully evaluated a lot of things going up to criticality. So the three though that we point to that caused delays, at least the first two on their own weren't big, but they required us as we started to heat the plant up and pressurize it, we saw the vibrations. There was some conversation about whether we should start the critical test and fix it later and we said, no, let's do it right. So we brought the plant down. We inserted a couple of metal plates, to be honest with you. It's to some trucks that connect to the pipe and fix the vibration. I mean it was pretty straightforward, it just took time to heat up, pressurize, take heat down, depressurized. The second thing we saw was a valve that was connected to some pipes that effectively had two DRIPs per minute. We wanted to eliminate all DRIPs. And we identified that there was a repositioning of a flange associated with this valve that we ultimately are -- I think we're just about fixed with it today, but I got a report from Pete Sena, our President of Nuclear. And I think that's done today. That's completed. The last issue is not completed, but it has to do with flow through the reactor coolant pumps. And we're just now making sure that we know what the issue is. It could be a physical issue, it could be a calibration issue. In fact, the flow may be good, but we need to recalibrate the measurements around it. So we're all about kind of looking at that today.

Tom Fanning:

I would think so. Yes, Steve, I would think so. I mean, that's -- when we go in to fix the vibration on the pipe, we saw this other set we said, yes, let's not push it, let's fix it. All of that takes time. It's just phrase we use, but we really do act on it and get it right. We'd rather have this thing, get into criticality. Once you go nuclear and go critical, things become much tougher. So anything we know about let's deal with it now. And you should know that anything we find now we go over to Unit 4 and check that, for example, and we think the issue on pipe vibrations is spoken for now on Unit 4. We won't see that. So anyway, that really is the answer. We're trying to get as much as we can. Once you get go critical, it's a much more challenging environment than it is before you go critical. Just trying to get everything we can see right now.

Tom Fanning:

Yes. But that is why we test, right? I mean you should view the power ascension once you go critical as a series of tests that involve a whole variety of different conditions of the plant, taking it up, bringing it down, throwing emergency stops in there, all kinds of things. The purpose of the initial voyage, if they will, the test voyage is to find problems. And we allow for that within the schedule. And now, in fact, we have more time to allow the schedule calls for, I guess, on the original schedule, something like two months of testing, the prescribed start-up in is two months. And there's roughly a month of slack time to fix things, okay? We now have, I think, another month that we've added into our projection into the second quarter. But for sure, Steve, we'll find some…

David Arcaro:

Extend my congratulations as well. I was just wondering, a follow-up on that question. Is NRC approval? Has that been needed for any of the remediation work on these couple of issues that you found at Unit 3?

David Arcaro:

That makes sense. Understood. And are these issues that at this point now, you could potentially avoid for Unit 4 bring learnings from the start-up process on Unit 3 and potentially make Unit 4 smoother such that it's not a kind of a one-for-one delay here equals a delay later?

David Arcaro:

Yes. Got you. Got you. And then a separate topic, but the decline in natural gas prices is a nice tailwind for customer builds. I was wondering when would customers -- could you just remind us when they might see lower prices flow through into rates? And how does that interact this year with your plans for the deferred fuel collections?

Operator:

And we have a question from Durgesh Chopra with Evercore ISI. Please go ahead.

Durgesh Chopra:

Thanks, Tom. Appreciate it. I think, Dan, this is in your view house. Maybe just -- I apologize if I missed this, but can you give us your sort of your CFO to debt or FFO to debt as of year-end 2022? And where that is tracking versus the -- your targeted credit metrics? And then when in your planning horizon, do you expect to get to your targeted credit metrics?

Durgesh Chopra:

Got it. That's super helpful then. So just to be clear, like you would be outside of the fuel balance, you would be close to like 16% on Moody's basis as of the end of 2022, if you exclude the fuel balance that's on the balance sheet?

Durgesh Chopra:

Got it. Got it. And just one hopefully, a quick one. In 2023 EPS guidance range, can you just remind us like what is your assumption for earnings from the Unit 3?

Durgesh Chopra:

Got it. And congratulations, Chris and Tom, I much appreciate the time today.

Tom Fanning:

Angie, how are you?

Tom Fanning:

Yes, sure. The 65 thing is it's kind of a policy. It's not a rule, I don't guess. The Board and I had lots of discussions about staying on beyond 65. One of my personal interest has been to help see Vogtle through. And I'm still young physically and young at heart, I guess, and when we kind of cross that threshold, we looked at people like, Wow, Mac, who is, I guess, you're what, a year younger than me. And if you've been around Chris at all, you would know that he still acts like a 25-year-old. So it was very easy to see him continue in the role, and he has fire in his belly and he's done a great job wherever he's been most notably at Georgia Power, successfully working with our constituents on the three-year triennial rate case that we do. So it was easy for us to kind of say, look, 65 is just a number, so long as we're able to contribute in a robust way, that's great. And that's how we did that. There really wasn't any connection with Mark Crossley, to be honest with you. He had -- I don't know, I want to go into all that, but he had some issues he wanted to deal with. It was reasonably clear that he wasn't a contender as a successor here, and I think he decided to retire. That was kind of his choice at the end of the day.

Tom Fanning:

Yes. I'll go ahead with. Chris was asked directly. He's committed to 70.

Tom Fanning:

No, Angie. It has nothing to do with that. It really is two things. So Dan is a conservative soul and he likes to build his plan without considering upside. So as we've done for years, the way before Dan got here, we don't put in place holders. We think about them and think about what effect they could have. Further, we don't add anything from Southern Power. And you should think about contributions from Southern Power as upside to the base case. It really isn't a constraint of capital structure or balance sheet.

Nick Campanella:

Congrats to all management changes. I guess just hot functional for Unit 4. You have this nice slide here, Slide 8, looks like end of March to, call it, late June on HFT. Just going back to kind of the conservatism comments like where do you kind of see yourself tracking towards now with the system turnovers and the line of sight?

Nick Campanella:

Okay. And then can you just update us on the time line for the prudency review just with the latest kind of update to the COD data?

Chris Womack:

We're scheduled to end a prudence on fuel load of 4 -- so that's the schedule and that's the path we'll take, and that's the agreement arrangement we have with the Georgia Public Service Commission.

Operator:

We have a question from [Paul Fremont] with Ladenburg. Please go ahead. Your line is open.

Unidentified Analyst:

Thank you so much. Going back to -- going back to Unit 3. The flow-through on the reactor or cooling comps, is that a valve issue as well? Or is that something else?

Unidentified Analyst:

Okay. And the valve issue that you talked about with the DRIP, that's completely resolved?

Unidentified Analyst:

And then how many ITAAC approvals do you think you need to move forward and actually do hot functional testing?

Unidentified Analyst:

Okay, because I thought on Unit 3, there were a certain number of ITAACs that you thought were nuclear-related where you didn't feel comfortable doing the hot functional testing without having those in hand.

Unidentified Analyst:

And then last question for me. If you were to do the additional CapEx beyond the base, does that also not require equity? Or does equity come with that?

Operator:

And we have a question from Anthony Crowdell with Mizuho. Please go ahead. Your line is open.

Anthony Crowdell:

Not bad, Tom, how are you doing?

Anthony Crowdell:

Congrats to all and I just have one quick follow-up from Durgesh's question on the credit side of the world. Just with the units going in service, do you think the credit agencies lower the downgrade threshold because of the, I guess, reduced business risk?

Operator:

And that will conclude today's question-and-answer session. Sir, are there any closing remarks?

Operator:

Thank you, sir. Ladies and gentlemen, that concludes the Southern Company Fourth Quarter 2022 Earnings Call. You may now disconnect.

Scott Gammill:

Thank you, Scott. Good afternoon, and welcome to Southern Company's Third Quarter 2022 Earnings Call. Joining me today are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company; and Dan Tucker, Chief Financial Officer. Let me remind you, we'll be making 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, Form 10-Qs and subsequent filings. In addition, we'll provide non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I'll turn the call over to Tom Fanning.

Dan Tucker:

Thanks, Tom and good afternoon everyone. As Tom mentioned, we had a strong quarter with adjusted earnings of $1.31 per share, $0.08 higher than the third quarter of 2021. The primary drivers for the year-over-year increase are higher revenues associated with increased usage and retail pricing at our regulated utilities. These revenue effects were partially offset by higher nonfuel O&M expenses consistent with the rising cost environment and our long-term commitments to reliability and resiliency, along with higher interest and share dilution from the mandatory conversion of our equity units. A detailed reconciliation of our reported and adjusted results as compared to 2021 is included in today's release and earnings package. Turning now to retail electricity sales in the economy. In the third quarter 2022 weather-normal retail sales were 1.8% higher than in the third quarter of 2021. This increase reflects stronger sales across all three customer classes, as we've continued to see expansion across our Southeast electric service territories. We also continue to see robust customer growth with the addition of 11,000 residential electric customers and 8,000 residential gas customers during the quarter. We are encouraged by these trends and continue to monitor the potential impacts of supply chain constraints, labor force participation and inflation pressures on our outlook. The economic development pipeline in our service territories remains robust. Within our electric service territories, economic development announcements through the first nine months of 2022 compared to the same period in 2021, reflect a 170% increase in job additions and a 237% increase in business investment. Next, I'd like to provide you with an update on our outlook for the remainder of 2022. With adjusted earnings per share through September of $3.35, we expect to achieve adjusted full year earnings near the top end of our guidance range of $3.50 to $3.60 per share. Our adjusted earnings estimate for the fourth quarter is $0.23 per share. Tom, I'll turn the call back over to you.

Operator:

Thank you. [Operator Instructions] We have a question from Shar Pourreza with Guggenheim Partners. Please go ahead, your line is open.

Tom Fanning:

Hey, Shar.

Tom Fanning:

Just got made by Vice President, give him all the credit.

Tom Fanning:

Well, you do know that this is an accounting order, is what it's been since 1995, which means it's not technically kind of a litigated kind of thing. You know that this process has been in place since 1995 and that it really is, I think, a process that has been proven, tried and true, to let every party have their say and have a constructive outcome. And I think we've proven that time and time again. Us commenting on any particular part of anybody's testimony at this point really isn't constructive. Let the process run and I'm sure we'll be treated in a constructive way at the end of it.

Tom Fanning:

I'll turn this over to Dan here in just some more details. But effectively, among and between Oglethorpe and Dalton and MEAG, we have reached an agreement, a settlement with MEAG. My sense is, Dan, you're not going to know anything else about the rest of these likely until the end of next year.

Shar Pourreza:

Got it. Thanks for that. And then just lastly, I know you guys have previously talked about Georgia Power just not really being super competitive against third-party developers in terms of winning the solar RFPs. Sort of with the tax credit changes with transferability, solar PTCs, et cetera, that came with the IRA, could Georgia Power now potentially be able to compete and win a portion of the solar RFPs we're looking at that Georgia is going to be running? And then how do we sort of think about that versus what you assume in the current guide? Thanks.

Dan Tucker:

Yes. Shar it's important to think about this in terms of the planning horizon, right? So this is a longer-term dynamic. So, you're not going to see very much on the front end of the five-year plan. Those decisions have already been made. Those RFPs have already been executed for resources. So, you're really talking about the back half or even the last couple of years of our five-year forecast where this opportunity may manifest itself as potentially rate base assets. The other thing that is a new dynamic that's entering into the equation, certainly, affordability of kind of a low-cost profile is what this -- these tax benefits change. Other considerations will begin to factor in to some of these resources, location, how much the controllability of them and so, it's kind of the difference between the notion of lease cost versus best costs, where there's locational dynamics and other things at play.

Shar Pourreza:

Got it. Terrific, guys. Thanks so much and see you in a couple of weeks. Appreciate it.

Operator:

Our next question is from Ross Fowler with UBS. Please go ahead, your line is open.

Ross Fowler:

Good. How are you? So just a couple of questions. One, election day is two weeks away, but we're not going to have a Georgia Commission election on that day. So can you just remind us what the process is from here around redistricting and how that actually works, whether it's a statewide or district election and how that would sort of proceed?

Dan Tucker:

And some of that time, maybe, because it becomes a bit of an iterative process between the legislature and the court.

Tom Fanning:

That's right.

Dan Tucker:

Sure, Ross. So, again, as a reminder, all of our outlook assumes a total cost for Vogtle that goes into rates of $7.3 billion. And so the way that will break down in terms of rolling into base rates and thus, earnings or to power full allowed ROE, there's $2.1 billion that will go into rate base, the month after Unit 3 goes into service. And then the remainder, following prudence proceeding next year, would go into rates the month after Unit 4 goes into service. And so based on the current schedule, you'd be at Georgia Power's full allowed ROE on $7.3 billion for the full year 2024.

Dan Tucker:

The passage of time and increase in the cost of debt, we're essentially there.

Dan Tucker:

Correct. Fuel load.

Ross Fowler:

Of 2023 in the current schedule. All right. Thanks, Tom. Thanks, Dan.

Operator:

Our next question is from Jeremy Tonet with JPMorgan. Please go ahead, your line is open.

Jeremy Tonet:

Good. Good afternoon. Thanks for having me. You touched a bit on it before, but as it relates to IRA, just wondering, are there any other aspects to the bill that impact Southern that you could share with us at this point that you've determined. Clearly, benefits for the customer is very important here for other types of tax cuts beyond renewables. Would that impact Southern or minimum tax? Just wondering if you could share thoughts on the bill more broadly and its impact on Southern.

Dan Tucker:

Yes. And Jeremy, I'd say the other things that we're kind of exploring and trying to better understand and certainly waiting for IRS guidance is the normalization opt out for storage. That's something we're certainly evaluating how that impacts customer rates the transferability of these tax credits is particularly interesting, especially within Southern Power, where historically, we might have used tax equity. This creates a new, perhaps better dynamic in that regard. There's been a lot of discussion about the nuclear PTC. But we -- right now, as we sit here, based on our interpretation, I don't see that having any meaningful impact for us. But again, we'll wait for guidance on that and see how that turns out.

Dan Tucker:

And the certainty that these are there for the next 10 years provides a lot of flexibility and planning and the way we think about our business.

Tom Fanning:

Yes. Yes. I would argue that the new nuclear future of America will likely start with SMRs. We hear a lot about people discussing putting small modular reactors into effect. I mean, that could happen last half of this decade certainly. The larger Gen 4 reactors that you're referencing to me are kind of mid-30s and beyond.

Tom Fanning:

Thank you.

David Arcaro:

Hey, thanks so much for the time. I was wondering if you could give a little bit more color around just the updates on Unit 4. The time frame didn't shift. Just wondering for additional color around how productivity has been relative to recent targets based on just eyeballing the green line and the red line. It looks like maybe even a little bit ahead over the last two months. And has there been increasing clarity with the progress that you've made on Unit 3 also as you look to Unit 4?

Dan Tucker:

Look, I think you hit the big issues. The testing will become critical path here for Unit 4 in the near term. And it is certainly predicated on those lessons learned and being a smooth process. And right now, the focus is getting the right people focused on Unit 4 in that regard where they've been tied up on Unit 3 completing that work.

David Arcaro:

Okay. Great. Thanks for that. And then a separate topic. I was just wondering if you could touch on how you're managing interest rate headwinds right now with debt issuances coming next year, any ways to hedge against that proactively or other ways that you're looking to manage potential EPS headwinds there?

Dan Tucker:

Yes. So to Tom's point, we're starting from a great place in that regard. We've done things this year to take risk off the table, accelerating or upsizing some of our issuances, taking some of the variability out of the portfolio here in the short-term. We'll continue to do those things. And then look, already in 2022, interest rates certainly are having an impact on our results, and we've been able to offset that. We've got levers within the business to do that, and we'll continue to focus on those as we move forward. Like with anyone, I mean, we were fairly conservative about our assumptions over the long term. And like everyone, I'm sure our assumptions in the short-term were pretty far off, but we're managing through that.

David Arcaro:

Yeah. Great. No, that’s helpful. Thanks so much.

Tom Fanning:

Thank you.