Q3 2021 Southern Co Earnings Call
Okay.
Good afternoon, My name is Myra and I will be your conference operator today.
At this time I would like to welcome everyone to the southern company's third quarter 2021 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone.
If at any time during the conference you need to reach an operator. Please press star Zero I would now like to turn the call over to Mr. Scott Gammill Investor Relations Director. Please go ahead Sir.
Thank you Laura good afternoon, and welcome to Southern company's third quarter 2021 earnings call.
Joining me today are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company, and Dan Tucker Chief Financial Officer, let.
Let me remind you that 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.
Conciliations 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 <unk> Southern company Dot Com.
At this time I'll turn the call over to Tom Fanning.
Thank you Scott good afternoon, and thank you for joining us today.
As you can see from the materials released this morning, we reported strong adjusted results for the third quarter.
The economies in our service territories continued to recover from the COVID-19 pandemic.
And in particular customer growth continues to exceed our expectations given results through September we expect full year adjusted earnings per share to be above the top end of our guidance range, Dan will share more on this in a moment.
But let's begin with an update on vogtle units three and four.
Two weeks ago, we updated our expected completion timeline for both units.
Standing the in service dates by three months.
For unit three following the completion of hot functional testing, we completed work down of the 158 safety related rooms within the nuclear island to assess the extent of remediation work required consistent with the electrical installation quality issues, we highlighted earlier.
Or this year.
The number of instances of items needing remediation found during our full assessment process.
Wherever exceeded our estimate from July.
The change in the unit three schedule into the third quarter of 2022 is primarily a function of the time needed to address the full scope of the remaining remediation work.
And to account for the impact on productivity, resulting from higher than expected attrition and slower than expected onboarding of new electricians.
Yield engineers and supervisors.
For unit four recent progress has slowed as craft labor and support resources have been temporarily shifted to support unit Three's, Kentucky completion effort.
Considering this decrease in available resources over the next several months plus recent productivity trends. We now expect unit for in service during the second quarter of 2023.
Importantly, with the corrective action to the site has implemented after discovery of the unit three quality issues, including reinforcement of the importance of first time quality with craft personnel and improvements to the application of battles quality program, we believe that as we.
Ill turn systems over on unit four the amount of remediation work required will be less than what we experienced on unit three.
During the third quarter consistent with the surrounding areas. The site experienced a spike in COVID-19 cases that approach the peak of cases, we experienced early in 2021.
While the availability of vaccines and well established protocols help preclude the same degree of disruption experienced during the first waves of COVID-19, the pandemic was certainly a contributing factor to overall productivity and resource availability.
For unit three repairs to the spent fuel pool.
System turnovers, and I tax of medals continued throughout the third quarter.
Repairs to the spent fuel pool are now complete and the next major milestone for unit three will be the receipt of the one O three G letter from the NRC to.
To date 242, Eyetech have been submitted to the NRC with 156 remaining.
On slide seven of today's earnings call deck. We have included a forecast of the remaining I tax of Middles required to support a projected may 2022 fuel load and third quarter 2022 projected in service date.
Now considering our recent volume of I'd tax of Mills in October and the expected completion and turnover of significant significant systems. In the months ahead. This site is targeting eyetech completion earlier than what is indicated in this forecast, which would provide margin to you.
Unit Three's remaining schedule.
We expect to use the time between Eyetech completion and fuel load to finalize the non safety related elements of the plant and to complete any remaining pre fuel load testing.
Turning now to unit four direct construction is now approximately 89% complete.
Our revised projected in service date of the second quarter 2023 reflects the temporary shift of services to unit three recent productivity trends on bulk electrical work and ongoing efforts to add craft labor and non manual field support resources in support of <unk>.
First time quality and productivity.
Construction completion for unit four has averaged 1.4% per month since the start of the year.
To achieve a second quarter 2023 in service date, we estimate that unit four would need to average approximately 1% construction completion per month.
Through the end of 2022.
From a cost perspective.
Georgia Power's share of the total project capital cost forecast increased by $264 million largely driven by our updated schedule productivity consistent with recent trends the cost of additional resources to complete the full score for remaining work with necessary focus on quality.
And the replenishment of contingency.
As a result, Georgia power recorded an after tax charge of $197 million during the third quarter.
We remain committed to the credit quality of Georgia power and Southern company and we will continue to seek to maintain strong credit metrics for both entities.
Our priority is bringing unit vogtle units three and four safely online to provide Georgia with a reliable carbon free energy resource for the next 60 to 80 years, we are committed to taking the time to get it right.
And we will not sacrifice safety or quality to meet schedule.
Unit three we are working to submit remaining I tax to support receipt of the one O. Three G letter prior to fuel load and commercial operations in 2022 for unit four we remain focused on attracting and retaining necessary craft labor and support resources as well as.
First time quality as we work to increase productivity and progress toward the start of open vessel testing, which is now projected by the second quarter of 2022.
Dan I'll turn the call over now to you for an update on the financials.
Thanks, Tom and good afternoon, everyone. As you can see from the materials. We released this morning, all of our major subsidiaries had a solid quarter and our adjusted consolidated earnings are trending extremely well through the third quarter.
For the third quarter of 2021, we reported earnings per share of $1 23 on an adjusted basis once that higher than both our estimate for the quarter and our adjusted third quarter 'twenty 'twenty earnings per share for.
For the nine months ended September 30th 2021 we reported adjusted earnings per share of $3.05 compared with adjusted earnings per share of $2.78 for the same period in 2020.
A detailed reconciliation of our reported and adjusted results is included in this morning's release and earnings package.
Major drivers for our adjusted earnings results for the third quarter of 'twenty 'twenty. One included higher retail kilowatt hour sales at our state regulated utilities as we continue to see recovery from the pandemic strong customer growth and impacts of several constructive regulatory outcomes, partially offsetting these impacts.
Non fuel O&M reflects the trend towards more normal operating conditions relative to 2020.
Wilder than normal summer temperatures in the southeast also negatively impacted earnings per share by two cents compared to our estimate and by seven cents compared to the third quarter of 2020.
Turning now to customer growth through September we have added over 40000, new residential electric customers and over 20000 residential natural gas customers across our regulated utilities.
This level of customer growth has exceeded our forecast year to date and puts us on track to surpass last year's customer growth levels, which were also above historical norms.
Customer growth continues to be driven by a strong labor market recovery, which is on track to reach pre pandemic levels of employment in our southeast service territory next year.
For the third quarter weather adjusted retail electric sales were up 3% compared to last year and were in line with our expectations.
Residential sales remained higher than expected due to extended remote work practices and commercial sales showed continued improvement coming in slightly better than our forecast.
Industrial electricity usage lagged other customer groups, primarily driven by production cuts from a single large customer in the chemical segment.
Absent this customer specific event industrial sales have been in line with our forecast for the quarter.
We continue to analyze retail sales and in aggregate through the third quarter. Our retail sales have essentially recover to 2019 pre pandemic levels. We are encouraged by these positive signals. While we also continue to monitor the potential impacts of COVID-19 variance supply chain constraints and Les.
Force participation.
The economic development pipeline in southeast remains robust job announcements in business investment in Georgia in the third quarter, 'twenty, 'twenty, one where higher than pre pandemic levels for 2019, and the average of five years ending 2020.
In Georgia alone. There are currently over 200 active projects with the potential to bring in nearly 40000 jobs and $13 billion in capital investment in the coming years.
Next I'd like to provide you with an update on our outlook for the remainder of 2021 with adjusted earnings per share through September of $3.05. We expect to achieve adjusted full year earnings above the top end of our guidance range of $3 35 per share.
Our estimate for the fourth quarter is 35 cents per share, which implies an estimated full year result of $3.40 on an adjusted basis.
Before turning the call back over to Tom I'd like to follow up briefly on Tom's update on Vogtle, three and four first I want to reiterate our commitment to credit quality, which has been constant.
In our last call, we and we reinforced that commitment by announcing we would turn on our dividend reinvestment plans in the near future.
As we have done so well over the last several years. We also continue to evaluate opportunities for asset sales within our portfolio the size of southern company.
We have several investments, which warrant continuous review for whether or not a better owner exists whether such potential transactions served to offset our near term equity needs or ultimately fund our long term capital investment plans, we will remain disciplined to the benefit of equity hold.
<unk> and bondholders alike, as we execute our financing plans.
And finally, let me briefly highlight the Vogtle unit three rate adjustments stipulation that was unanimously approved by the Georgia Public Service Commission on Tuesday.
Consistent with the framework the PSC established with their order for the 17th Bcm process. This most recent order allows $2.1 billion of investment in Vogel unit, three and the Vogtle units three and four common facilities to be moved from the nuclear construction cost recovery tariff.
Or in C. C R into retail rate base. The month after unit three goes into service, where it will learn Georgia Power's full allowed rate of return. Additionally.
Additionally, Georgia power will be allowed to recover the related operating expenses and depreciation on this portion of unit three which is an important credit supportive aspect of the stipulation.
Tire process, which struck an appropriate balance for all stakeholders was a great affirmation of the constructive Georgia regulatory environment, Tom I'll now turn the call back over to you. Thanks Dan.
Let me wrap up with an update on the south Eastern energy exchange market or same and our fleet transition.
Subject to resolution of any rehearing requests seem as moving forward after clearing the approval process.
Seem as a region wide automated intra hour platform consisting of nearly 2020 entities across 11 states with the goal of more efficient bilateral trading in the southeast it is not an energy imbalance market or in our T O.
Benefiting from robust integrated planning by the individual states municipalities and utilities. The region represented by same members scores very favorably on all important metrics compared to the R. T o's across the country.
<unk> will improve electric service to customers in the southeast a reason that is already an industry leader for customer satisfaction and reliability. The members have seem electricity market also provide low retail prices for residential and business customers using a mix of carbon free energy res.
Horses similar to the rest of the country.
We believe seem is good for our customers and we're excited to be a part of this new platform, which is expected to launch in mid 2022.
Turning now to our fleet transition.
In our most recent climate report named implementation in action toward net zero, we reaffirmed our long term goal of achieving net zero greenhouse gas emissions by 2050 as an important step in the transition of our fleet earlier this month, Alabama power and Georgia power.
Sure filed plans with their respective state environmental authorities detailing how each would comply with the United States Environmental protection agencies.
Fluent limitation guidelines.
With these expected changes and the recent retirement announcement of two coal units at Mississippi Power's plant Daniel.
<unk> 2007, Southern company will have announced total decreases in its coal generating capacity for more than 20000 megawatts across nearly 70 generating units.
To less than 4500 megawatts of coal capacity remaining at eight generating units. This equates to a reduction of nearly 80%.
The final resolution for many of the actions outlined in the E. L. G component compliance filings, including the exact timing of retirements and any other actions. We may recommend remain subject to the approval of our state public service commissions through the integrated resource plan.
<unk> processes or I or PS.
These proceedings are intended to comprehensively address transmission and generation resource needs over the long term, which could include additional decisions regarding the future of the remaining coal units.
As always part of our planning process for transitioning. These units will include placing a high priority on protecting the interests of our employees and the communities we are privileged to serve.
The transition of our generating fleet and the important regulatory proceedings that will play out over the next nine months will significantly inform our capital investment opportunities as we always do we will update our capital investment plans during our fourth quarter earnings call early.
Next year, which will include known fleet transition opportunities. It is likely that further transparency on our long term capital plan will unfold throughout 2022, and we will update our forecast as appropriately.
Importantly, our current 2024 earnings per share base of $4 to $4.30 is based upon our current five year capital plan with potential incremental investments, providing the opportunity to strengthen our position both with.
And that 2024 range and within our 5% to 7% long term growth range.
Now before we move to the Q&A portion, which we always love here.
This just came across the wires.
Next week is veterans day.
And a publication that I'm sure you all know well military times came out with their best for vets ranking of employers and we've typically been on the list that shows the top 15 companies across America and include well known companies like Bank of America.
Allen Hamilton Hilton Group, Johnson, and Johnson and others.
They just have named Southern company. The number one company in America, that's best for Vets that included our valuations of recruiting practices.
Tension and support programs and a higher emphasis on employers who provide assistance and flexibility for individuals in the guard and reserves. We certainly respect the contribution that these folks make they are a significant part of our employment base I think amounting to over.
11% of employees today, we respect their service and we want to make sure that they have the best work environment that they could have.
We are honored beyond belief to be named the number one company in America best for Vets as named by the military times.
Thank you for joining us this afternoon.
Operator, we are now ready to take questions.
Thank you.
I'd like to register a question. Please press the one followed by the four on your telephone you will hear Sweetcorn pump technology request.
Your question has been answered and you would like to withdraw your registration. Please press the one followed by the three.
One moment please for our first question.
Our first question comes from Shar <unk> with Guggenheim. Please go ahead.
Hey, Shar, thanks for joining us.
Oh.
Excellent Dan nice to hear your voice.
Just a couple of quick questions here.
I think you know.
A lot of investors are hoping to hear more about your postpone capex opportunities at EI next week, especially kind of with your Georgia, and Alabama higher piece next year can you remind us of some of the types and size of the incremental capex, we could see when you roll the Capex plan.
Forward next February maybe offer some ballpark figures to help frame the opportunity set as you shut down coal how youll finance it what the impact of rates could be I mean, I understand things have shifted between now and then but any color would be great.
Yes, Shar I hate to disappoint, and we're not going to say very much next week.
Suffice to say.
That these plant adds if approved by the public service commissions will have an impact on capex.
We always provide that update in our call I guess it'll be at the end of January early February.
About our fourth quarter results and total year results.
So we will certainly do that then.
But are you know I think as I said.
To the extent there are impacts the current capital forecast formulated our range in 2022, a $4 to $4.30 to the extent there is an increase.
In Capex, certainly that strengthens our place within that range and the longer term, 5% to 7% growth rate.
The other thing that we should remember about rates is that as you retire coal you free up a whole lot of O&M.
We intend to use that O&M.
To.
Basically allow for cost recovery account for the incremental revenue requirements associated with new generation that will replace that and keep rates as low as possible for our customers.
And sorry, just as a reminder, what Tom said in his prepared remarks is the $4 and $4 to $4.30 on 'twenty 'twenty four is predicated on our current Capex plan and I think the way to think about these incremental opportunities is that it will.
Potentially increase or intensify over time, I mean, you kind of said post Vogel I think that is the point in time, when we really begin to see tangible long term increases to that profile from $8 billion, a year to something more and one last point there.
One of the benefits of our integrated resource planning process as we get to optimize portfolios not only on generation, but also transmission so transmission could be.
A benefit there the other one you should keep in mind is we currently we've said this on other calls we currently allow for about $500 million a year of cap allocation to things like southern power. None of those allocations are included in our forecast.
And it would stand to reason that as the United States transitions, it's generating fleet, there will be more opportunities for southern power in that regard.
And just on the transmission Char and the reason, we're being a little hesitant to share too early while there's transmission opportunities associated with what we will retire the other transmission opportunities come about with what we replace that with and where and that is simply a function of our integrated planning process.
And we just need to let those play out.
But it's a good thing for US good thing for our customers, we get to iterate around those choices you don't get that opportunity.
In the organized markets.
Got it. Thank you for that and then I know lastly for me I know, there's a lot of focus on exactly which month unit three will be in service next next year, but im a little bit more interested on you know what happens once it's online. So once unit III comes online how should we think about what that means for earnings and cash.
In light of the PSC proving the joint settlement with the staff. This week right I know theres a lot of moving parts with TCR D. C. The penalty roe's, but just really at a high level what are sort of the immediate impacts to cash flows and earnings following unit III, reaching in service. Thanks, guys.
Yeah absolutely.
So, let's just make the assumption for the sake of describing all this shar that you know the third quarter means September of 2022 so given the result at the Georgia Public Service Commission.
Earlier this week that will mean that rates will go into place for $2 $1 billion of unit three in the comm facilities, earning.
Georgia Power's full cost of capital if you think about it relative to what we're earning today, that's going to add about a third of the sense of EPS for every month. So for October November and December relative to what you would've forecasted under current conditions, it's about a third.
A penny.
Per month.
The.
Important thing is that $2 $1 billion is not the full cost of unit three and a common facilities. All what remains will remain earning a return under N C. C. R.
Or will be deferred for future recovery with the commission and at the same time will be recovering.
Currently the operating costs of unit three and the depreciation at least associated with a $2 $1 billion.
Got it.
That was super helpful. Thanks, guys I appreciate it great execution.
Thanks sure. Thank you.
Thank you. Our next question comes from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, Julien how are you.
Quite well thanks, Tom for pleasure to connect with the team Congrats Dan too. So, let's let's just dive right in on the act itself Friday here, you, obviously made some pretty interesting comments a moment ago just wanted to clarify there.
As you think about regulated versus perhaps some of the other assets you own that southern power or otherwise what exactly are you thinking about there and then more importantly.
What equity need or are you kind of thinking about here, obviously, it's not it doesn't seem at least is expressly stated two substantive here, but can you talk about how you're thinking about equity needs.
Especially considering some of the prospective capex you alluded to I suspect that kind of feeds into this this commentary on asset sales too.
Yeah sure. It does I'll, let Dan speak to the equity and AIDS I'll go back to the kind of litany on M&A that I always do you.
I think we've demonstrated in the past, whether we're buying or selling.
We always seek to put assets with the best owner or formulation for that is the the old rubric value is a function of risk and return and so we have ideas right now we really don't want to front run in the public what those ideas are about assets were.
There may be better owners, we'll see whether they come to fruition or not certainly as they do we will keep you updated but we kind of aro looking over our list of things and we'll see.
Dan you want to speak to the equity needs yeah, absolutely. So Julien essentially what we're addressing is only the impact of the recent vogel cost increases so to the extent that that has an impact on our credit profile, we're committed to mitigating that whether that's turning our drip.
On our finding opportunities with these asset sales beyond that we still see a long term plan even in light of the incremental capex opportunities that we're alluding to where we don't need incremental equity I think it's important to point towards a post Vogel <unk>.
Forecast period, and our credit metrics out there are about 200 basis points for F. F O to that higher than they are today and that's a position of strength for us and gives us a lot of flexibility as to how we finance our growth.
And Hey, I just want to clarify just back on <unk> question. The I said, a third of a cent per month. It's two thirds of cent per month, just want to make sure. That's clear two thirds of central got it got it.
Yeah and to be very clear to you now.
I'm trying to be less elliptical on kind of what we're looking at but you should you should assume as we have moved here to be what is it 95% of our earnings are integrated regulated kind of earnings that it would contribute to that profile in other words, we're not going to buy.
By our sell things, which make ourselves more risky.
I think we love the idea of reasonable turn and low risk and also as you have seen in the past years or so since I've been here.
As we have bought say for example.
G O resources now southern company gas there have been things around the edges that have allowed us to simplify and derisk our business. So think about those things and we'll see how it goes.
Got it excellent and then just coming back to the unit four obviously you made some comments a moment ago about some.
Some of the labor availability et cetera.
And then remediation work I mean, how do you get comfortable with the nine month time gap between those two units in service dates right and I'm, just calling out that staff had stated I suppose at various points about some of the concerns they have.
On that.
The second unit in service.
Yeah, Julien yeah. Thanks for that that's an important point to raise.
Has that has the ties that both ebbed and flowed here, let me explain that a little bit.
We believe that Bechtel has had the responsibility to attract skilled personnel skilled craftwork, especially electricians engineers to assess the work that's being done and field.
<unk> personnel supervisory personnel to oversee the work that's going on.
We have not kept pace with the requirements to advance these units in terms of attracting the people and you named the reason why we've had more attrition I think certainly the amount of attrition is potentially associated with with.
You know the Covid response and everything else.
So we've had to do a couple of different things. We have said in the past that we were moving to D link.
The progress at unit four from unit three.
And so therefore, this 12 months kind of margin didn't matter.
Uh huh.
One of the ways that we serve to continue to advance unit three was again to borrow personnel from unit four.
So we didn't really want to do that but it was a necessary move to continue to advance the work at unit three.
Now as we finish that work, we will send those people back to unit four and once again they will be D linked.
But for the period of time in which we have borrowed personnel from four to three.
A delay in three means a delay in four and so that has happened.
The other thing that we have done is to augment our battles sourcing efforts with our own efforts and you know we've had a very deep engineering and construction services group and Birmingham.
Our own resources that we could attract personnel and so we have significantly augmented back those efforts to increase the flow of people necessary to promote skilled labor electricians and field supervisory personnel.
All of those things are in progress all of those things are consistent with the new schedules, we've given you.
And I will say one more thing.
There was a lot of conversation about this.
I can tell you, Chris Womack and I in particular, we're really watching the trends if I just looked at current data.
We still have margin six weeks or so to unit three.
Three months, our soda unit four on the existing not extended schedules.
We looked at the trends, however, and the trends to me were troubling.
And so we all kind of step back and said I would rather take the conservative posture.
Of evaluating these trends and adding more time, because frankly, we didn't believe that we had six months of scheduled margin left on three and three months of schedule margin left on for.
And you know we could have quibbled on adding a month or two months. We said, let's go ahead and add a quarter for both.
That's where we came out on this decision.
Got it so it's not so much the nine months' necessarily it said, you're adding a quarter of both of them. There's latitude within both scheduled if I'm hearing you right.
Yeah, and you know this idea of there's got to be 12 months. They are in fact, the only time they are linked as when we borrowed from four to three therefore of delay in three causes a delay and for once we get three back into into its place.
Then we're able to send the people back to four and again they are de linked the nine month difference between the two does not trouble us.
Got it okay I'll leave it there. Thank you guys best of luck.
Here from you soon thanks, Bob I appreciate you calling in.
Thank you. Our next question comes from Steve Fleishman with Wolfe Research. Please go ahead.
Great. Thank you glad to have Tom.
Likewise.
Dan.
Have your CFO.
So.
Just first on the.
Maybe Tom just on the Vogel schedule.
I know you don't want to speak for for staff. The commission, but just with this latest update in the way that you're kind of giving schedules now is it is there a better chance that that.
They'll match up closer to what you are saying when they come out in a few weeks.
On this.
Or should we be prepared for something that's again.
Different than what you're saying.
Yeah, Steve you kind of gave me the answer before I answered and that is I don't want to speak for staff.
You know.
A particular Doctor Jacobs is a guy that I know well he attends the same meetings, we attendee sees the same stuff we see.
He has a really bright guy.
You know I think I think if I had to highlight something.
That.
We'll come under some discussion and I think it's absolutely correct.
Want to look at schedule kind of variability at this point.
We believe we see a pretty clear track to receiving the one O. Three G letter, which allows us to load nuclear fuel allows us to go hot on the site.
There is a certain amount of work that will occur between the receipt of the letter.
And the actual loading of nuclear fuel.
In my opinion.
That work that is from one O three G receipt to loading the fuel is probably the remaining biggest risk to schedule that remains on unit three.
Recall in the script, we talked about finding more remediation.
And I know in some other media we've talked about these items, none of them being deal killers, and all that stuff, but there is no such thing as a little issue in nuclear everything we take seriously everything must be done effectively with perfection.
And so it is that time that we're looking at right now that I would say to you is probably the shared view of Doctor Jacobs in particular and us as the biggest risk to schedule that remains.
Right now our assessment of that work if it if we get the one O. Three G letter early let's say January.
Then I'm going to guess and this is just a guess on my part so don't hold me to it but I'm going to guess there may be six weeks of work left from receipt of the letter to the actual loading of the fuel.
If the one O three G letter is delayed than that six weeks reduces because this is work that can be done in parallel with some of the other stuff that's required to get one O three Gee Ric.
Remember, we've talked about three buckets of work that we identified post H F T.
One bucket deals with the issues, we identified during a hot functional test.
The second deals with remediation that frankly has increased since we passed the one O. Three G letter and really was subsequent to the July call. We had with you guys.
The last bucket really dealt with human performance systems, HV AC signage a variety of other things.
So that works that work margin is bigger so let me just say it again.
If we get receipt of one O three G kind of early let's say, it's January I mean, who knows.
It could be as much as six weeks.
If we get one O. Three G. Later that work time will shrink to two weeks or something we'll see.
See that's where I think you will see a lot of discussion between us and the commission.
If I could just add real quickly.
Tom's comments, the the nature of the risk for that will work post one O. Three G up to fuel load is really logistics. So once we receive one O. Three G. The site becomes an operating nuclear site. So the logistics of getting people the ingress and egress of personnel to do the remaining.
Work is just friction on productivity and that's really the nature of that risk.
Great I hope that was helpful.
Yeah that was very helpful.
And.
Dan going back to the question before about trying to kind of size the.
Potential equity need or asset sale target need.
Just look at the.
What the cost increases have been is that it's as simple as that or are you targeting any different.
Metrics as well.
And then you had prior to that.
Yeah look Steve were if you want to make an assumption in your model that are opportunities to do that is the size of the after tax write offs. That's a reasonable assumption that said I mean, we are looking.
Across multiple opportunities, we will see what that looks like more importantly from a long term perspective that uplift in the credit metrics that we've talked about is really what is key we always take a long term view on this stuff and I'm very comfortable with how we're positioned long term and there's not a need right.
Anything more significant than those near term kind of charges that we've taken to turn.
Okay and you haven't.
Yeah go.
Go ahead Sir.
Yeah, No I'm, just you haven't given a number on what the.
The drip equity, but you said you turned the trip onto you.
So we have so much yet, but we have so we've not turn it on where we're holding that as an option to see what if anything becomes of any asset sale opportunities and we will do one or the other the drip on an annual basis.
Equals about $400 million worth of equity.
Yes.
Okay, and then in a prior call I kind of said was we thought the drip in one year with all the last issue. This was another roughly $200 million.
So, let's see what the review of our.
Asset sales are and we'll figure out where we go on the issuance of new shares under the drip. So please assured if we can find a better solution than issuing shares under the drip will do it.
Right and I guess to the degree that there is there might be some.
Incremental.
Growth opportunities in the capital plan as you.
Go through Rfps fleet transition et cetera asset sales could help.
Could help fund that part Jamie Cook.
And as Dan indicated Rob if you look at the Capex forecast most likely the capex opportunity associated with the transition of the fleet will occur in the back part of that Capex forecast right.
Where our credit metrics.
Will be much harder and they are okay.
Okay.
No.
Thank you.
Thank you Steve.
Thank you. Our next question comes from Jeremy Tonet with J P. Morgan. Please go ahead.
Hey, Jeremy.
Good good thanks for having me.
Just wanted to come back to Vogel.
If I could here just wanted to see if you could provide some incremental color on labor market impacts here and just as I'm thinking how much just costs go up per months away at this point just this prior increase seemed a bit larger than I would've thought.
Yeah, So Jeremy the way to think about it this has really been.
What has occurred both in the second quarter and this most recent announcement here in the third quarter.
The cost increases have really been a function of two things.
One is the schedule itself and so that's kind of that notion of hotel load that we talk about right and so for unit three that is $35 million a month I believe and for unit four or $25 million, a month and about $15 million a month for unit four so for every month reached unit.
That's just the infrastructure that supports construction and the cost of that with this most recent increase and again much like the second quarter increase. It also came with new assumptions on the number of personnel necessary to complete the work and so that's where that incremental cost is coming from.
Both increases really represented about.
Have pure schedule, our hotel costs, and then the other half personnel and productivity assumptions to complete the work.
Yeah, and I would be remiss, if we didn't add the idea that in sourcing all of these personnel in the skilled labor Sean Mcgarvey and his team at the building trades has been fabulous. The IBEW in particular has been great they've given us tremendous ongoing support and I think our relationship with them is really bad.
Fruit here as we augment that those efforts.
Got it that's helpful. Thank you for that and maybe just pivoting towards the D.
D C for a minute here if I could you know obviously things are fluid here.
But just wanted to see you know as things stand right now what are your biggest takeaways from the federal infrastructure legislation and when thinking about minimum taxes, well I guess you know how do you think of some of the gives and takes as it relates to southern.
Yeah, Jeremy calling the situation in Washington fluid is a bit like calling the Grand Canyon a crack.
I will say this that there's lots of good stuff in the infrastructure Bill and in the reconciliation bill that help us they're shaped mostly as incentives and we think that incentives are the way to go we're particularly interested in anything.
That as we go through this transition of the fleet and transmission.
Two a net zero a few future that would keep prices as low as possible.
To help our energy resource in a worldwide competitive market to keep it to keep America in a in a very strong position to compete for new loads in manufacturing and a variety of other things. So it is important for the nation is important for our customers to keep prices.
Low and to provide incentives to do that that's kind of thing one.
Thing too Dan can correct me here or whatever but we've looked at this minimum tax proposal and we think it doesn't have that much of an impact to us maybe it bounces around from year to year as you would expect but it kind of averages 1% that's right Tim.
So doesn't have much of an impact us I'm sure it would for others that rely on tax benefits to drive their earnings.
Got it that's helpful. Thank you.
Thank you. Our next question comes from Michael Martini with Goldman Sachs. Please go ahead.
Hey, guys Hey, Mike.
Yeah go ahead.
I just wanted to say a thank you for taking the question B Dan Congratulations another kind of be Lee talented person in the CFO seat and Joe large company always with what's going on in and kudos well deserved.
Thank you Michael next next year in Georgia.
And I'm, just trying to think about the regulatory calendar and the series of events and more how they intertwine or if they intertwine.
So you'll go through the RFP process I forget if the I R. P actually gets kind of formal approval or not but you've also I think it will have a rate case.
And then when you also filed to get unit four in service if it looks like you know similar to how you did with unit three.
Go ahead and set what the revenue requirement would be.
Yeah. So Michael there there is a laundry list of things going on next year.
We're certainly taking all of that into account if you look at history.
The Georgia power company with its relationship with the PSC itself and with the workload at the staff.
I think we've always managed to find our way to get big things done.
And we just look forward to that constructive relationship going forward I think the recent settlement agreement we reached on the.
On the stuff, we just mentioned in the in the script.
Was evidence of that continued good working relationship there is a lot going on next year with D. C M with I R. P. With Vogel three with you know potential prudence hearings beginning on the fuel load of four with a rate case filing so theres a lot to work through just understand that as we have in the <unk>.
Past, we'll work with the folks involved to do it in the right way.
Got it my other question and I saw a little news blurb brief this past week or so about your buying a plant from a infrastructure private equity owner to serve I think it was for Alabama power. Just curious when you look around you see significant opportunities for kind of plants M&A to bring.
Them into rate base versus going through the construction process.
Yes, we do and.
You know, we keep those things just as we're talking about buying and selling and we want to kind of keep our our kimono closed at this point as we see those opportunities we'll certainly.
Our work on them. That's just another evidence of something the other kind of good thing about buying used assets that way as you think about transitioning the fleet I think I've said this in the past to get to net zero for us we're going to have a profile.
In the 20th 40 to 2050 that will look something like 50% renewables.
Maybe 20% nuclear may be 25% natural gas a lot of that natural gas will have ccs on it.
The kind of a tail end of that you know the 5% remaining could be something different it could be hydrogen it could be a variety of other things hydrogen doesn't appear to be all that viable until maybe in the thirties. You do know that the plant, Alabama is building has the capability to blend hydro.
Andrew its fuel mix. So you may see hydrogen.
Occur in an indirect sort of way prior to the forties and 50.
But anyway my sense is that that you're going to have a lot of opportunity to buy some natural gas. The good thing about buying used units is they may have a remaining life of 10 to 15 years that fits in with retirement schedules that are consistent with adding more renewables. So there.
Those assets look like bridging asset.
And very attractive economically and important to our strategy of replacing it with renewables.
Got it thank you Tom much appreciate it.
You bet always good talking with you.
Thank you.
Our next question comes from Paul Fremont with Mizuho. Please go ahead.
I timelines a pleasure to have you with us.
Thank you so much.
You've talked a little bit about.
Yet you still have construction work remaining on the plant can you give us sort of a timeframe that its going to take for you to complete the construction and if you want to sort of separate out the that third bucket that you think you can do.
After you get the ladder, you can do it either with or without without that bucket.
Paul I'm, sorry, maybe I'm not following your question could you.
Try that again in terms of in terms of days or months, how much how much physical construction work do you have yet remaining on unit three.
Okay. So in general.
What I indicated was here.
Here we are in.
Nearly the middle of November Okay. So in order to hit January a one O three G.
So that's a two months round numbers, Okay, and then I would say if we had one O three G. N hand in January My Best guess right. Now is there may be another six weeks of construction.
So, let's just think about that two months plus six weeks is three and a half months.
Okay.
That's a broad estimate.
Okay.
Certainly.
Hey, excuse me, Paul and we certainly have allowed more time than that in the revised schedule remember we added three months' to all that.
Right.
My answer to your question.
Okay. So you believe you have six weeks of physical work still to go.
And then well Oh.
Hold on hold on Paul It's what I would say is six weeks of physical work to get to one O. Three G. It maybe that it takes eight weeks I mean, who knows but that that's just a reasonable guess.
So middle of November no I'm, sorry, Edwin and I said two months middle of November to Middle of January as two months.
And then you would say add on some more time to get to fuel load.
Right.
That was a response to I think it was fleishman.
So between one O three G and fuel load there is more work to be done and I estimated that at its maximum.
Say six weeks in and it's a minimum that's assuming we have a delay on one O three G.
Two weeks something like that.
So say.
What I say three or four months.
Uh huh.
I am I answering your question there.
So Paul let me two months plus another either six weeks or three weeks, depending on where you are if it were less than six weeks.
Yeah, Paul I remember.
As I said, if it was if it was less than six weeks that presumes that there is a delay in getting one O. Three G. The total amount of time is lets just say three to four months.
And Paul just stated a different way with our September assumption for it in service in the third quarter of 2022.
Then work could continue through April with a one O three G receipt fuel load in May.
And then in service in September.
And then can you tell us where you are relative to turnover and testing I think there were 159 systems for each of the plants that does that need to turnover and testing.
You were I think the last update you were roughly at 120 on unit three.
But is there any update on where you are.
Now on unit three and unit four.
So so let's think about it we have now completed so there was 158.
Walk throughs to go through we've completed them all now okay. So let's start there.
We think there's about.
Let's see 100000 hours or so.
Direct construction.
We have in terms of systems.
I forget how many we started with but around.
17 left to go.
In between the.
July call and now.
We've turned over 11.
And so it's kind of interesting to look at is the symmetry of that even though I think we're probably closer.
If in three months it we turned over 11 17 to go I just said three to four months.
That's a little inaccurate because all the systems are being worked on and we're getting closer.
Those are to complete all of the systems, So, there's probably a little bit less than that.
In order to get to one O three G.
We need the completion of eight system turnovers.
We have seven.
To get to fuel load. So that's the delta between one O three G and fuel load and I said that can expand and contract. How we think about that those seven are being done in parallel with the eight required to get one O. Three G. So those are not sequential they are parallel.
And then even after fuel are there are some things that will continue to be worked on I think there's like two systems that you can do even after fuel load.
So let me just say that again.
Of the 17 systems that remain to turn it over.
Eight.
Our required to get one O three G.
Seven are required to get to fuel load too can be continued to be worked on even after a few alone.
So.
I'm gathering from what you were saying in the past I think you've needed to get all of your high tax approved by the NRC before you can get the 1% or three G letter.
I'm Catherine here or are you guys asking for.
<unk> to give you different treatment, where you would get the 103 G letter before all of them.
Nope Nope. This is all consistent with everything we've ever done with the NRC and and one O. Three G. Everything's kind of in other words, all the <unk> would need to be approved but I would assume that not all the but you would still have systems that would be untested. So those are systems that don't.
Require <unk> approvals I take it.
Yeah in order to get permission to load fuel. So the systems. After a permission to load fuel are not necessarily safety related items.
They they could be.
And it could be somebody signage issues or something like that anything that is required to get one O. Three G is encapsulated in the ate systems I mentioned.
Before we load fuel, we still want to do seven.
Two of those not two of those and additional two can be done even after we load fuel.
Theyre, just not safety related construction items.
And then my low bidder.
Alright.
Yeah, just want to clarify Paul in our materials when it does relate the I tax we provided a schedule of an eyetech completion cadence that would support.
April one O three G may fuel load September in service, what you'll note is that theres nothing showing in November because in order to support that schedule you don't need any November our expectation is there absolutely will be some in November in fact, I believe we've already submitted to since the month has begun so.
Every one in November that gets completed reduces the number that need to be completed between December and April to support one of three Jay I'm sure you guys know Aaron Abramowitz. He was kind of a chief financial officer of the projected was actually located onsite now he's the CFO of Georgia power.
In order to give you the schedule that you saw in your in your package.
<unk> what he did he started with in September in service date, we believe we have margin to that but he started with September in service and then he reverse engineered back in a conservative way to say well this would be the itek completion schedule consistent with September.
We believe we have margin to that as we get I tax filed in November I'll go ahead, and say, we expect to get about 20.
Well this one the schedule. We gave you indicates nothing in November and not much work in December we think we'll have that exceeded by a pretty good margin and so it will be ahead of the schedule well that just suggests our belief that in fact, there is margin to the schedule, we're giving you now.
And the other thing that was important in this.
The reason why we went to all this trouble was we thought you guys would want to have a way to measure our progress.
And hitting one O three G and ultimately fuel load and we thought this was kind of a good way to measure our progress so look and see how many <unk> we filed in November and December and compare to this schedule and I think you'll see that.
I think we will beat this schedule pretty handily at least early on for sure.
And then last question.
Where where are you currently in the in the car sharing band as it relates to you and your partners in the plant are you now at a point, where you are picking up a 100% of the incremental project cost.
We believe we have not entered that we certainly have some discussion among us and the other co owners about that.
And I think we've disclosed that and I'd, rather not go too far into that and I. Just appreciate your patience with US. There you know just as we don't front run regulatory process as we have a long track record of not doing that.
It's best for Us to have the resolution of those differences of opinion done in private but just very matter of fact, we Paul as we disclosed our calculation suggests we're not even into the first band of sure.
Okay.
Great.
That's it for me. Thank you so much.
All your great. Thank you for joining us.
Thank you. The next question comes from Sophie Karp with Keybanc. Please go ahead.
Hello, Sophie how are you.
Thank you my question how are you.
You bet.
[laughter].
One.
Do you expect to have any kind of incremental labor she says.
All of the.
Cheryl.
In the Covid vaccination mandate.
Kicks in.
Sorry, with soon I think and just any thoughts I appreciate it keep in Europe Libre first vaccination rates.
Yes, Ma'am you know are.
We always have the health and safety of our employees the foremost in our minds and I think if you look at the way we've handled the site through the epidemic I think it's been amazing the accomplishments that those folks have done even under restrictive protocols. You know we were just on a call here.
As we've just gotten more.
More granularity I guess from Osha about what their expectations are.
It's 400 pages long, we're kind of diving through it we know there are legal challenges to come it's really too early for us to say right now.
What we think the impacts will be.
So I.
I know even EI has requested.
Our 90 day delay.
There is there's a lot to digest right now.
Let's.
So, let's keep our eyes on that and just as a final thought.
You folks know that I've been leading the E. S. D C. The electricity sub sector coordinating council.
No that deals with cyber and physical threats. It also deals with the industry's response to major storms, we call those national response events.
So I've kind of helped.
Organize the national response to a hurricane or a snowstorm or what have you.
Clearly as you introduce new operating requirements into those.
Gigantic magnitude events, we've got to make sure that we serve the interests of customers and not only get the wires up and the plants running but restore hope to the communities we are privileged to serve.
We don't want to let any of these new requirements interfere with our ability to.
Really serve the American economy during those times. So all of those conversations are going on right now and Cynthia I wish I could give you more granular stuff, but it's all just very timely conversation, we're working through I'm very confident by our next earnings call, we'll have more to say there.
Got it thank you for the comments.
You bet. Thank you.
Thank you.
Our next question comes from Paul Patterson with Glen Rock Associates. Please go ahead.
Hey, Paul Great to have you with us.
Paul.
Yeah.
Well, it's still great to have you with us I don't know where he is.
Mr. Patterson. Your line is open please check your mute button or lift your handset.
It appears we are unable to hear you.
Please go back where you register for a question if you'd like to ask your question.
And that will conclude today's question and answer session. Sir are there any closing remarks.
Just to say thank you.
I get frustrated at times.
I know you guys may get frustrated also this kind of schedule stuff.
But I think what we're doing right now is conservative and prudent.
It gives us more margin, we're working very hard we're making progress.
We will get there and I want to thank that people at the site for working so hard and making the progress they're making with respect to the challenges of personnel quality that always remains foremost in his phrase we use get it right is so important to us we will always work to get it.
Right.
So thank you for your for your understanding and all of that.
As we move through these issues we've had good progress the regulatory construct we had on the first 2.1 billion at all I think it was more evidence that I think we do have a constructive working relationship and that post Vogel the numbers are essentially irrefutable I mean.
Think that cash flow earned.
Earnings trajectory.
Overall financial integrity of the company is truly outstanding and we think warrants anyone's interest as an investment.
So thank you for your time and we look forward to talking with you next week at <unk>.
Dan in his closing comments.
So every one of these.
Alright, that's all operator, thank you very much.
Thank you, Sir ladies and gentlemen, this concludes the southern company third quarter 2021 earnings call you may now disconnect.
Yeah.
Yeah.
Yes.
Yeah.
[music].
Okay.
Uh huh.
[music].
Uh huh.