Q1 2022 Southern Co Earnings Call
Available on our Investor Relations website at Investor Dot Southern company Dot Com.
This time I will 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. We released this morning, we reported strong adjusted earnings results for the first quarter ahead of our estimate.
Economies within our southeast service territories are among the best in the United States and we believe we are well positioned to achieve our financial objectives for 2022.
Before turning the call over to Dan for a more detailed look at our financial performance I will first provide an update on recent progress at plant Vogtle units three and four.
Importantly, the projected completion timeline and capital cost forecast for both units are unchanged from the update that we provided last quarter since that time, we've seen sustained progress consistent with our expectations for each unit.
The NRC completed its follow up inspection land next week and issued its final supplemental report.
The inspection verify that southern nuclear effectively implemented the corrective actions and remediation efforts at the site.
No additional findings were identified during the follow up inspection and the findings identified last year have been closed with this step complete the vogtle site returns to the baseline inspection program.
Let's focus now on unit three.
We continue to progress towards receipt of the NRC is 103 G letter.
All necessary systems have been turned over from construction to testing and.
And nearly all of the inspection records necessary for submission of the remaining Tac are now complete.
Associated with this progress 70, <unk> were submitted to the NRC since our last earnings call.
53 Eyetech remain.
Of these remaining intact. The last 30 to 40 are expected to be completed just prior to submitting the all eyetech complete letter to the NRC and support.
The 103 G letter.
<unk> our progress over the last two months, we have provided an updated eyetech completion schedule.
Following receipt of the 100 <unk> letter from the NRC and AD unit three continues its transformation from construction to operations.
Our efforts will be focused on completing the remaining inspection records system turnovers, and the necessary pre operational and component test required to load fuel later this year.
Turning to unit four direct construction is now approximately 94% complete.
Unit four continues to make progress in advance of cold hydro testing and hot functional testing.
We believe we have the resources, we need on site for unit four and have a clear plan for transitioning additional personnel from unit three as we continue our focus on increasing productivity and ensuring first time quality.
Overall construction completion has averaged 0.9% per month since the start of the year supportive of a September 2023 in service and head of the 0.4% average.
<unk> to be needed through the year and to achieve a December 2023 in service date.
For electrical production specifically progress on unit four is meeting our current expectation however, electrical production will need to increase to support our projected in service date.
The schedule changes announced last year required vogtle, three and four owners to affirmatively vote to proceed with the project, which in late February that unanimously voted to do.
This decision underscores the importance of the 'twenty 200 megawatts of Baseload carbon free energy, which will be vital to increasing the availability of net zero resources for customers across the state.
We value our partners on Vogtle, three and four and the relationships that we have had with them across multiple endeavors for decades.
Look forward to our continued partnership as we work to bring Vogel units three and four safely online, providing georgia with a reliable carbon free energy resource for the next 60 to 80 years.
We are pleased with the progress at the site over the past few months and incredibly proud of the entire team at Vogtle units three and four for their relentless commitment to completing this important project safely and with the utmost quality.
Dan I will now turn the call over to you.
Thanks, Tom and good afternoon, everyone as Tom mentioned, we had a very strong start to the year, our adjusted EPS for the first quarter of 2022 was 97, one <unk> lower than last year and <unk> <unk> above our estimate.
The primary driver for the variance to last year was higher non fuel O&M, which reflects a trend towards more normal operating conditions relative to significantly reduced levels. During the first quarter of 2021, and then largely offset by constructive state regulatory actions and robust customer growth in our state regular.
Utilities.
When looking at adjusted EPS compared to our estimate for the quarter. The main drivers were continued strong customer growth and cost control a detailed reconciliation of our reported and adjusted quarterly results as compared to 2021 is.
It is included in today's release and earnings package.
Turning now to retail sales and the economy in the first quarter.
Weather normal retail sales were approximately 1% higher than first quarter 2021.
This increase reflects stronger commercial and industrial sales from the continued economic recovery in our service territories.
Offset by lower residential sales as schools and businesses continued to transition from remote environments to hybrid or in person moods throughout the quarter.
We also continue to see robust customer growth with the addition of nearly 11000 residential electric customers and over 7000 residential gas customers during the quarter.
This level of customer growth is driven by a strong labor market recovery in our southeast service territories are expected to reach pre pandemic levels of employment later this year.
Additionally, the port of Savannah, which is the fourth largest port in the nation and a major contributor to jobs and economic growth in Georgia.
<unk> experienced a 3% year over year increase in container volumes in the first quarter of 2022 ahead of 2020 one's record pace as elevated U S. Consumer demand continues to drive record cargo levels.
Recent figures from the Georgia Port Authority also signaled that congestion is easing with only a handful of ships currently at anchor outside of the port of Savannah down from a peak of around 30 in mid September of last year.
Additionally, the recent approval of the Garden City terminal West expansion is expected to increase the port of Savannah is annual capacity by more than 15% by the end of 2024.
The economic development pipeline in our service territories remains robust.
In the first quarter of 2022 compared to the first quarter last year economic development announcements in our regulated electric service territory saw a 168% increase in payroll additions and a 66% increase in business investment respectively.
The first quarter closed with 230 active projects in the pipeline for the state of Georgia alone, which was well above historical averages and new job additions in Georgia exceeded seven an.
An all time high for the first quarter of the year.
We remain encouraged by the economic trends that we're seeing as we continue to monitor the implications of supply chain constraints Labor force participation in.
And inflationary pressures on our outlook.
And up to final topics before turning the call back over to Tom first for the second quarter. Our adjusted EPS estimate is <unk> <unk> per share.
And second I'd like to highlight our recent dividend increase announcement earlier. This month the Southern company Board of directors approved an eight cents per share increase in our common dividend raising our annualized rate to $2 72 per share.
This action marks the 21st consecutive annual increase and for three quarters of a century dating back to $19 48, Southern company has paid a dividend that was equal to or greater than the previous year.
This remarkable track record reinforces southern company as a premier sustainable investment.
And as we mentioned on our last call. We believe once Vogel three and four completed our board will have the opportunity to consider accelerating the rate of dividend growth further supporting our objective.
Providing superior risk adjusted total shareholder return to investors.
Tom I'll now turn the call back over to you. Thanks, Dan.
Sustainability has always been a top priority for southern company in recent years, our plans and progress have received heightened interest from our investors customers communities employees and other stakeholders, we have a long history of constructive engagement with all stakeholders and we are excited about the recent really.
Lease of a dedicated sustainability website, which provides additional transparency on core environmental social and governance topics.
This new site highlights the tremendous work underway across our company to help us reach our sustainability and business objectives as we seek to build the future of energy.
Additionally, just this week, we published a report outlining our just transition principles and look to continue enhancing our disclosures.
No that stakeholders are increasingly interested in information related to our sustainability efforts and we remain committed to open.
<unk> parent communication.
In closing I'd like to take a moment to recognize the great job that employee throughout southern company do each and every day.
National alignment appreciation day, which was observed this month, specifically recognizes the important contribution of line workers and those supporting them to our country from.
From extreme heat to bitter cold to answering the call of those in need thousands of miles away for days and weeks at a time the hard work and unwavering dedication that these men and women display day in and day out is truly inspirational.
Moreover, last month, the Edison Electric Institute and the International Brotherhood of electrical workers presented the prestigious Edwin D. He'll award to Alabama power and the IBEW system Council June 19.
Through the National utility industry training fund and the electrical training Alliance, Alabama power and the IBEW are providing current and prospective employees with the appropriate training necessary to install and maintain the fiber infrastructure.
That enables grid automation and resiliency and improved community access to broadband. It is an honor to receive this award and we remain committed to continued support and investment in our workforce to ensure that our employees have the skills and training needed to successfully.
Meet the ever evolving needs of the customers that we have the privilege to serve.
Thank you for joining us. This afternoon, operator, we are now ready to take your questions.
Thank you if you like to add just a question. Please press the one followed by the four on your telephone you'll humor Sweet home farm to acknowledge a request. If your question has been answered or you would like to withdraw your registration. Please press the one followed by the <unk>.
Our first question comes from Jeff We are <unk> with Guggenheim Partners. You May proceed with your question.
Shar how are you.
Sure are you there.
Are you on mute.
If you do 20 Bucks.
Operator, I don't hear Shar.
Do you want to go to the next question.
Certainly one moment.
Our next question comes from Julien Dumoulin.
Smith from Bank of America, You May proceed with your question.
Hey, Julien.
Hey.
Thanks for the time opportunity I appreciate it so thanks for the comments too. So just on unit four I just wanted to talk a little bit about productivity, how is that trending versus historical and euro on our expectations and then more specifically if you can just given all the comments about inflation and specifically the labor environment, what exactly you're seeing there and just both on the availability.
Literally being able to get chemo and then probably more of a more relevant is the cost.
Those individuals.
Yes, I think simply Dan can fill in some blanks here, but.
Unit four remains on track with our expectations.
We are consistent with our expected timeframes and budgets.
All good in that regard I think we gave you the data that suggest that the 0.9%.
Kind of average monthly increase in construction is consistent with.
September timeframe.
It is an advance.
<unk>, 0.4% that we need to hit the year end. So that's your three to six months.
Stuff.
Importantly, as we said in the script I just want to make sure you know.
All of our production for unit four is consistent with our expectations. We are moving people from three to four.
So.
We expect their productivity and their production to increase over time, so consistent with our estimates we need to increase we have plans to move people over to effectuate that increase with respect to inflation and pay frankly.
Frankly went over that here getting ready for this call.
We believe we are still top decile pay.
Towards the southeast and we feel like.
Most of that risk is behind that Dan do you want to add anything else.
The only I'd add.
You hit on this briefly but we do have a very detailed plan for transitioning, particularly the electric craft from unit <unk> unit four as we go through this process and then as you would expect us to do we're certainly applying every lesson learned from unit three to unit four and that will also factor into our ability to incur.
<unk> productivity.
One last point there.
Attrition is at normal levels. So.
It's progressing as we expected.
Yeah.
Excellent. Thank you guys and then just if you can comment here on the tender timeline with the co owners.
It looks like it's coming up here in mid June to mid August how should we think about the timing for resolution of the disagreements around baseline costs COVID-19 costs.
For that window opens in the middle.
Will that resolution be communicated and what are your expectations today.
Julian.
To dive too deep into this that's a conversation that frankly just needs to take place in the right form with us in our Kona is as Tom mentioned in our prepared remarks. These are partners that go back with us decades.
Have a track record of resolving any sort of disagreements constructively, we will let this play out over the course of the year. The timeline you referenced is.
It was 120 million to 180 day clock that started back in March just to kind of formalize that that's certainly a backdrop.
These discussions, but let's let's let that play out on its own throughout the rest of the year and you should know that this is not a discrete kind of.
Engagement, we have with our co owners.
With them last week at the site.
You should view us as having a real time conversation here.
Alright, good luck anything else here.
I've got more but I'll, let other folks jump in here, but thank you guys.
Alright, but it will feel free to jump back in if you like thank you for J Jill Good luck guys. Thank you.
Our next question comes from Steve Fleishman with Wolfe Research you May proceed with your question.
Hey, Steve Yeah, Hi, everyone, Hi, Tom Hey, Matt Hey, before you would get to your call I just wanted to compliment you on your call to action here I thought that was really well done.
Good.
Sure.
Our board.
Cool.
Now that you brought that up I am curious if you are.
Antibodies actually.
If youre hearing anything out of D. C that would suggest that anybody actually.
Mike mentioned in action.
Alright, I guess BBB slimmed down or.
Or other.
Energy policy.
Well Im sure you can see my little comment on Squawk box this morning, but.
I think one of the headlines.
Media was.
Essentially unleashing and then just make sure I get it here, the United States needs to unleash the American energy economy.
We have been having conversations with people like Gina Mccarthy.
And secretary of energy.
Jennifer Granholm and others listen this is a constant conversation Senator Manchin I think has lots of good ideas I think the challenge that we see in D. C. Right now is essentially deal physics.
How do we get the right number of people to agree on the right number of issues and get it done in a timeframe.
That is enough in advance of the November elections to be constructive.
Listen I think people get the issue.
And Steve now more than ever when we see Russia weaponized its energy policy, it's time for the United States to take action.
Okay.
Thank you.
So.
Second question just.
Maybe related.
Your.
One of the companies that still has a pretty.
Good mix.
Cash still some coal renewables nuclear or just.
I know you have that dataset that you've put.
In your slide deck, and just showing that.
Mix and you had pretty consistent.
Metrics that would be a little more renewables, even though gas it moved up a lot in <unk>.
Price. So maybe you could just give some color on.
Just why why not seeing more switching away from gas.
Well I think I guess a little longer.
We see more call.
Yeah Man.
This may be I don't know the full data set for our industry.
But we've always had this constructive relationship with our state regulators in a long time ago, we put into place put in place hedging programs.
So in effect I am going to say about and Dan correctly about 30% of our natural gas consumption.
Was hedged at about $3 per million Btu. So when you think about the dispatch curves.
They are probably better than.
What you might have expected because of that hedging program and of course, as we pointed out lots of times over over decades, all of these benefits accrue to our customers we make no profit.
Percentage off of any of this than anything else.
Yes, a couple of things so.
One thing that is occurring Steve is we are being a little.
Conservative might be the right word in terms of looking towards our peak season in the summer in our electric business and just making sure that we're holding on to enough coal there as well so.
There are times when we're we might have otherwise switch the coal, but because we are looking ahead and what's behind that and I think you may have touched on a little bit of this in your report.
Transportation of energy is one of the things that is certainly a hot topic and frankly, we don't have enough people talk a lot about natural gas pipes on coal, it's obviously with the rails and with the.
Kind of lack of available personnel and other things rails or having to re prioritize their own train sets and personnel and frankly coal is not at the top of their list right balance. So we're just having to be thoughtful about how we do that the good news there is that the flag ship if you will of our.
Coal units as plant Miller in Alabama, It is the cheapest best.
Best controlled.
Plant it has plenty of coal for the summer so that one is in good shape.
The other thing that I, just want to make sure people hear loud and clear.
In no way does.
This negatively impact our long term objective of achieving net zero by 2050.
You have to understand that long term strategy should be robust to be able to match.
Manage the exogenous factors that that change our planned day to day.
Mike Tyson you have a plan until you get hit in the face and then what happens.
Certainly the tactics will vary depending upon what's happening in the worldwide energy markets, but our long term strategy remains intact.
Great. One last question secondly on vocal.
And so we.
When you.
When you made the update at year end.
Schedules of it mainly seem to be related to that.
Paperwork.
Issues within electrical contracting.
Which seems to be kind of getting resolved. So other than that issue is there anything else that we should be most focused on in terms of ink.
To the goal line on fuel load.
Yeah.
Beth.
If you if I could change your question, but it's a similar question.
What am I, most worried about right now on Vogel III in particular.
I would say that the I tax situation.
It looks pretty manageable if you just do the math that we gave you.
53 remaining <unk> and you think about meeting 30 to 40 to finish.
That effort that will occur in a fairly lumpy fashion right as we file the request for the 103 G letter.
It looks pretty manageable.
My sense is the itek situation getting to 103 G always hard we take nothing for granted certainly there is a variable in time and how we're going to do those things, but I think that looks like it's in pretty good shape.
I am more worried now about.
The work that has to happen between today and he will now.
That.
And covers a lot of different things, they're not nearly as kind of nuclear safety related.
As the 100 to three G. Obviously are but it would include things like and I'm, just giving you a sample, but the fuel transfer system aligning the electric buses.
Throughout the plant general demobilization efforts things like <unk>.
Moving temporary lighting and putting in.
Permanent lighting, removing scaffolding closing the rooms cleaning them and closing them getting ready for pristine operating condition. So that's a lot of stuff Thats still has to happen Theres I think a few system turnovers for that I think two left.
There is just more work to be done I think that is more of the critical path right now than probably 103 G. And then and then the next thing that I would say I worry about will be from fuel load to operation just.
Thinking about.
Fully operating the kind of follow on steam cycle and.
Making sure that the digital controls.
Our integrated together as well as they can be those are the big things in my mind right now Dan you wanted to say something.
So I think it's important to understand as you hear Tom described what's necessary to get the fuel load and the things. We're focused on there that is largely concurrent work with the work we're doing to get the 100 <unk>. It's not sequential it's not get to one first and then to the other we're doing those things on parallel paths, yes, that's why I tried to be pointing in say now.
To fuel load and the other thing that we've done we brought a guy to the site Pete <unk> Who's our Chief Nuclear Officer. He has run our fleet and so we've added another senior member to the team as we think about moving from a construction environment to an operating environment.
Great.
I remember him from GSE Angie great. Thank you.
Thanks, Dave Yes, he is terrific.
Next question next question. Our next question comes from Angie <unk> with Seaport Global you May proceed with your question.
Hey, Angie I always glad to have you with us.
Thank you thanks for having me okay. So I'm just wondering.
If you could give us any sense of what to expect from the upcoming rate case in Georgia and also how this new commodity price environment.
Change the other person.
Section of Eli.
Nuclear plants under construction.
Sure.
So the regulators politicians in Georgia, Andy Cohen has co owners of the project.
Yes Angie.
You know, having followed us for many years that we're not going to get in front of.
Anything to do with the regulators. So we will make our filing and when we make a filing right at the end of June we.
We will certainly reveal all of the issues I think in the rate case I think it's I think it's fair to say, though that the issues in the triennial rate cases as they have been in past really since gosh I don't know.
Boy.
<unk>.
What was it about $219 95, I think it was when we first filed our triangle rate cases, especially in this case it will cover issues separate from Vogel.
So I think they are more what I would call meat and potato issues about how the system is running and I would say, we've always been treated fairly we have a constructive relationship and whenever there is a sticky issue that arises we work it out.
I think you should just expect that same kind of process to continue yes, I would think about it to a large extent a lot of the capital items in particular are a continuation of programs introduced in the 2019 rate case things like grid investment Ash pond programs. So youll see those carried forward just updated.
But you wont expect any curve balls here this is normal stuff for us.
Okay and then on.
The appeal of Vogel now that's.
This.
Global recognition that there has to be.
More of a diversification of power sources and that gas might not be the answer for everything.
Oh, absolutely AMG look.
When you think about the energy dispatched price of Bogo.
Is going to be at about $1 per million btu as compared to say a $7 dispatch price.
Or even higher potentially of the gas fleet look this thing from.
From a dispatch standpoint is going to look like a champion.
By the way its carbon free.
And by the way, it's going to be probably the most reliable and safe as plant.
I don't want to be hyperbolic here, but it's going to be a really good asset for this for this state for the southeast and for the nation look I think we.
We are all feeling very good.
At its positioning in the future transition of the fleet for the southeast.
Okay and then just one last question I saw some comments in your 10-K about it.
Can you talk about the sourcing.
Of uranium and.
In nuclear nuclear fuel in general so processing enrichment.
How.
Hi.
It's dependent not dependent on any direct or indirect sourcing from Russia.
Well you answered your own question.
I think our we moved away from Russia as a system some time ago.
We're so glad we did.
We have no exposure to Russia.
Not even through indirect.
Exposure to Pemex.
No not no.
I've I've pushed on that question with our folks.
Many times now and.
We think we're well insulated from any Russia problems.
Okay, great. Thank you.
Yes, ma'am thank you.
Our next question comes from Sean <unk> with Guggenheim Partners. You May proceed with your question.
Thanks, John .
I'm, sorry, Tom I got I got all excited.
Yes.
Hi, Bob.
Hi.
They are not nearly as excited as well.
There you go.
Thanks for getting me back on.
Tom I'm wondering just curious when youre looking at the Georgia IR P. There is obviously a fairly healthy mix between gas solar and storage and essentially all the call has gone the size of the Boeing plant.
We're supposed to get.
With the circumvention tariffs I think in August and it goes through a period of rulemaking, which is about a month after the PSC decision with the IRB. So.
I guess, how are conversations going with stakeholders in light of this tail risks, which could cause some pricing uncertainty for some time I mean could we see the IRB may be shipped out pending visibility with the circumvention tariffs investigations.
That's a fascinating question <unk> is on its own schedule and I think supposed to be resolved somewhere July August timeframe.
I have not heard anything this recent news about the circumvention investigation is really interesting.
And I know some of my peers have had a lot to say about it.
My only comment on that Shar is.
Given a lot of my experience in National security issues.
It's my firm belief that if somebody is circumventing tariffs illegally that they should be held to account.
The United States needs to protect itself from an economic standpoint in this global economy. So let their investigation run and let's see what happens.
I think here again, it's a conversation between tactics and strategy in the southeast. It is clear to me that solar is a dominant renewable strategy.
In the long run despite any perturbation that we may see from this investigation I think we stay the course there yes sure you asked the question in the context of the current RFP.
Wouldn't overlay anything into this one the nature of the RFP process in Georgia is very long dated it's really if you go back to the 2019 IOP there are.
Our Fps being executed today and there are a matter of fact last week brought forward to the Georgia Commission was seeking approval to defer some of the PPA is from Alaska ERP out a year and that was approved in its it's tied into not directly to the circumvention issue, but the general supply chain constraints.
In the solar space.
Got it got it and then I'll.
Obviously.
There is there is we're still waiting for the Alabama, ERP as well, but you put the GA opportunities plus.
Alabama in southern power. It has a lot of capital that we're going to be potentially thinking about even post vault goal generating an electron in and the cash flows that come with that.
Maybe just highlight how youre sort of thinking about.
Financing that incremental capex that can come from the IR piece opportunities with southern power you already kind of optimize that asset, but I guess I'm curious as we're thinking about the next leg of Capex, especially post Vogel, how youre thinking about sort of the regional footprint.
The mix yes.
Are there opportunities beyond just straight equity or equity like instruments.
Well that's.
Let's first baseline.
What is capex I feel like I'm on jeopardy here all of a sudden but.
Our I guess, our official five year budget assumes $41 billion round numbers.
I personally think it's higher than that because I think Dan you demonstrated this last call. We typically understate our forward capital requirement because we're conservative by nature, because we don't account for anything in our budget that we don't know about in other words, we don't do placeholders.
When I think about what that number may be.
I could easily see something like 45 billion, who knows $9 billion a year round numbers.
And some of that may come from new generation or or things that may start to occur in the kind of late twenty's that may start showing up.
Maybe 25, maybe 26 timeframe. So those would be the years that I would think that we'd see additional capital I'll, let Dan argue with me here, but I don't see the need to issue any equity. During this timeframe last point I will make you have seen in the world of M&A you have seen.
Not only do acquisitions, we also do divestitures and asset sales. It is important for us to always put our assets in the hands of the best owner if that means we create if we do that well we create the maximum amount of value to shareholders. If we see opportunities in the future to do stuff like that we will do it buying.
And selling.
But we have no plans at present.
Have no argument with anything Tom said I would just reiterate we don't foresee any equity needs in this five year outlook, even with the upside on the tailwind.
That's perfect. Thank you so much guys congrats on the execution sorry about that earlier.
No sweat my friend, Thank you for joining us.
Chris.
Our next question comes from Michael <unk> with Goldman Sachs. You May proceed with your question.
Hey, Michael how are you.
Fine Tom Thank you and thank Dan for taking my question.
This one is more of a macro one it's an industry one it's probably even a heck of a lot bigger than just our industry here.
Yes.
Given all that's going on in the world given some of the stuff that came out a few months ago regarding.
Nuclear plant in Kansas.
Just curious how you and how industry leadership and how the board thinks about cyber security and managing and investing around the cyber security risk that exists today.
Well, we think is enormous and we are so lucky to have people on our board that are well steeped in it I mean, we have former secretary of energy, earning money as we are Dale Klein former chairman.
<unk>.
The NRC Christine <unk>, former chairman of the NRC all of these people have.
Classification status to.
Be able to play in this information.
An unfiltered way you all obviously know my role I've led the utility industry for eight years.
Turn that over to my.
Good friend that Berkshire Hathaway right now bill firm and now I chair.
The Advisory Board listen this is an enormous issue.
I was the only CEO private citizen on the cyber space Solarium Commission as I've walked the halls of Congress, which I do as frequently as anybody I guess.
It's clear to me that there is bipartisan.
Recognition of the importance of this issue and what we need to do about it. Unfortunately, there was no playbook when the cyber space Solarium Commission came out with its report I think it's been universally adopted in Congress of course, not every chapter was agreed to but 70% of that commission's.
<unk> are now in law and I'm, so glad now that I get to help and operationalize them.
Primarily now assessor and elsewhere within our own industry, but making this stuff come to fruition, the United States is making enormous strides.
And making ourselves safer, we will only do that as we re imagine the role of the private sector in preserving our national security I think we're making terrific progress with that and I want to give to shout outs.
First one is gen Easter really she's the director of CIT.
She does just a terrific job operationalized in the nation.
Our security agency and then our national Cyber director in the Whitehouse, Chris Inglis, just a brilliant guy and my wandering around before the Solarium Commission became to fruition P&I got together.
Found a real thought partner and how to advance the nation.
Look we have talent on our board we have talent inside the company and I think the nation is operationalized, a real plan to make our national security better than it ever has been a whole lot more to go.
Nano manner as a nation, we're better off than we were five years ago.
Got it and then a regulatory question Tom.
Thank you for that insight because over time, that's probably going to be I can almost guarantee it's going to be an issue.
More and more frequently as as generations path.
I've got a regulatory question I'm trying to think about the bill in the changes in the Bill in Georgia, So Youll file.
Trc in the next couple of months new rates, probably early next year and then a few months after that.
Vogel unit three if it goes into service as planned those rates will kick in and then fast forward to the fall of 'twenty three beginning of 'twenty four time frame the unit for rates will kick in.
Thinking about that right is kind of a progression of events of changes to the customer bill irrespective to any changes in the fuel costs.
Yes, I'm going to let Dan hit kind of the specifics of that but let me just say too.
We still are committed to bringing the vogtle unit.
At our cheaper than what was originally discussed when we received the order on those units. So I think we're still in at less than 10%, which is the big deal.
Yes, Michael you describe the cadence of those increases exactly correctly.
Got it okay.
And then finally can you just remind us the changes in the fuel cost I'm just trying to think about what's happened in the customer Bill how do you look at what's going on across the southern company's meaning, Georgia, Alabama et cetera.
What's happening the customer bill relative to what Youre seeing elsewhere in the country.
Okay.
First of all we're starting from.
Great spot Alright, I mean overall our.
Our rates relative to the national average bounce around anywhere from 10% to 15% below national averages. So we're starting from a good place we've got incredibly constructive mechanisms that help not only.
Capture what's coming so it is all forward looking mechanisms that are also very kind of.
The cadence of them as thought out very well.
Got it.
Michael Yes, you bet.
Okay.
No go ahead I didn't mean to cut you off site that sorry, I was just going to say more broadly look we're working.
Everyday internally to keep costs down and we've got coal plant retirements coming up that will help keep O&M down in customer bills down we're working to be more efficient in lots of different ways.
Turning capital into O&M savings, whether that's enterprise systems or whether thats. The things we're doing the grid investment plans and so it's not one or two things it's being very comprehensive in how we approach not only operations from a regulatory point. Let me also just weigh in on the market structure issue I know there are some with parochial interest.
In my opinion that are arguing for increased deregulation.
Dis aggregating the make move and sell structure that we find integrated in the southeast to be so valuable when you think about winter storm here. When you think about resilient value is a function of risk and return.
I'm afraid some of the so called organized markets have structured around preserving somehow the lowest price well, yes, they get low prices from time to time, but they also get a tremendous amount of volatility and no regard for reliability and resilience.
In the southeast in our integrated regulated market. There was one throat to choke and it is ours make move or sale. We are accountable to the commission and the customers in the markets. We serve in our opinion advancing to net zero, providing resilience, providing the lowest price to customers irrespective of.
Where commodity prices go recall, we don't have a profit motive in rising and falling energy prices, we pass those along to customers at cost. This is the right market structure to pursue and anybody that said different.
<unk> guided.
Got it. Thank you Tom Thanks, Dan much appreciate it guys.
Always good talking with you.
Our next question comes from Jeremy Tonet with Jpmorgan you May proceed with your question.
Hey, Jeremy Thanks for joining us alright.
Alright, Thanks for having me good afternoon.
Just one.
Go back to Vogel real quick if I could and maybe better understand the I tax a lot was completed in the last few months and just wanted to better see I guess, what the drivers were where the cadence where it's less in May and then kind of steps up into July as you said a lot right before the end is there like a degree of difficulty difference in these versus the others or just any other drivers.
I guess for the Lumpiness and the outlook there.
No. It's really the nature of the work to perform and I Wouldnt say its difficulty per se.
And the different time requirements.
And like I say that the Lumpiness is driven by the system that will be completed right before we ask for the 103 G letter if I had to characterize those I would say of the 30 to 40 roughly half of that deals with our final electrical work.
A quarter of it deals with the ventilation systems in a quarter of it deals with as you would expect the final primary controls and monitoring systems.
Once you finished that work then you file your letter it's just that as you do that work it's just.
A big slug of <unk> that go out with it.
Again, it's not a matter of degree of difficulty it's more a matter of timing.
Got it that's helpful. There and then just wanted to pivot towards the Georgia economy had a lot of good commentary there as far as what's happening talk about.
Record cargo levels in.
Strong economic activity getting back to pre Covid.
Levels in the near term and just wondering if you think about I guess the economic activity in your footprint going forward, maybe thinking more later dated has it changed I mean do you think that the growth is stronger now than maybe pre COVID-19 or just from a big picture point of view, how do you think about the growth trends longer term in your area.
Yes, and you should also I think.
CNBC put my interview out on their website. So you can go look at it.
What we have seen is a migration of people into the southeast, particularly Georgia, I think Georgia has the fifth highest growing population in the United States and there was this question of well.
Are we going to have a recession you may have a different way to ask the question in that would be regional recessions.
We don't see any data that supports a recession in the southeast at this point.
Let me give you some other data.
It's just interesting if you look at our industrial sales year over year was up one seven I mean, you guys know that's a good number okay, but within that number were two of our three biggest single site plants closed one was a chlor alkali plant and one was a newsprint plant.
If you remove the effect of those plants from the new brands and denominator, our industrial sales were up over four 5%.
That's amazing stuff.
So.
I think.
Especially as Dan suggested with the ports, you'll see the unwinding of supply chain you see the migration of people and you see the low unemployment rate.
I think the the.
The chemicals are in the sea for something to crawl up on the beach that will be sustainable and positive for years to come and certainly if there is a global downturn and if there is a widespread recession as we have seen in the past the southeast will be more resilient the downturn will be less severe.
And the emergence from that downturn, probably will be quicker. So I can't predict the future. All I can say is relative to the United States I love the organic economic growth in our area.
Got it that's helpful I'll leave it there thank you.
Our next question comes from Paul Fremont with Mizuho you May proceed with your question.
Hey, Paul I'll always glad to happy with us.
Always glad to be here.
Couple of quick questions one would be.
Yeah.
Cable separation remediation work that you were doing on unit three.
Is that fully completed and is is that work required.
As part of the <unk> process or is that separate from the <unk> process.
Yes, it is part of that process and yet still underway, but it certainly is winding down.
So your expectation based on the timeline that you put out would be that that work will be completed before July right.
Yes.
Anything that were putting out is consistent with the timeframes. We're in good shape, there I think.
Okay.
Is that your dog in the background.
That is why Miranda yes.
Alright.
Second question.
Question <unk>.
Talks about.
Thousands of documents.
Potentially.
That you needed to locate.
And this was around the time of the fourth quarter call. You said you had located 30%.
Did I hear you right on this call that those documents are now either founder of place.
It's not so much found sometimes it was incomplete sometimes it was absent.
We basically wound down that where there may be a few left to go but nearly all are done for 103 G and for those that are required to load fuel I think we're 75% of the way there.
There is still some work to be done, but it's not associated largely with 103 J. It's more associated with the work I described for fuel load.
Great I think that's it in terms of questions from me. Thank you so much and congratulations on on the NRC is when is the final report due out.
Next week I think we have already posted some stuff on their website.
And we've already had our debrief with the NRC.
Great. Thanks.
Thank you Sir.
Our next question comes from Nicholas Campanella with Credit Suisse. You May proceed with your question.
Hi, Nicholas Thanks for joining us.
Hey, everyone. Thanks for having me on really I really appreciate the time.
I guess I wanted to go back to Steve's question on just the comments on kind of running parallel paths with some of the remediation work and I know, where we're now waiting on the 100 <unk>, but.
As you get that one out of three <unk> is the expectation at this point that you can move right to fuel load is theyre, just really no more remediation that can be done and it sounds like youre ahead of schedule on that front. So if thats. The case is there any reason why we shouldn't be kind of targeting the midpoint for CODI.
Unit III, yes, Nick Yes, Nik Theres more work to be done you should not expect us to get 100, <unk> and load fuel immediately there is more work to be done.
There'll be some space in between yes, we have this chart. It shows 103 G letter received in star fuel load almost immediately I would expect if I were you if we got the 103 G.
Letter sooner there would still be a gap of time to get to fuel load.
Okay. Thanks.
And then I guess, you talked about moving folks from unit to unit four in <unk>.
Broadly are you starting to see lessons learned from unit $3 a unit for us at the translate and bear fruit, maybe you could kind of talk to that and that.
I would just yes sure of it.
We absolutely are in fact, we've re sequenced some work some stuff we mentioned in the past was energized nation.
The control room, and things like that we move that out.
We've really been focused early on and I think it was really smart.
The site wanted to fail fast if you will.
And complete testing as soon as we were able in order to.
Learn from whatever problems that arose and then be able to apply them.
Quickly.
Now that we have a set of learnings that unit three I think we have a better sense as to how to proceed on unit or incorporating those learnings and so you will see that in the unit for progression.
Got it got it Okay, and then if I could just sneak one more in.
The access to the best on a common asset sales are the best owner commentary.
You've been a large acquirer of kind of LDC has in the past there is clear interest from private markets I know that there is no asset sales on the table today, but just how are you kind of thinking about how the gas business fits into the overall southern portfolio and youre wider de carbonization goals at this point any comments there would be helpful.
Well actually I think our gas business fits in well with the de carbonization.
When you think about.
The whole effort of energy policy in America, we have to make sure that we balance all of that clean safe reliable and may be resilient.
And affordable objectives okay.
So you could say Oh, well, we should eliminate all natural gas appliances.
Don.
Eliminate gas heating well in Illinois that makes no sense at all.
Could afford to do that and the electricity electricity substitution effects in places like Illinois.
No sense compared to the economies that.
Our customers get through gassy and other.
Approaches like cooking and others.
What we have to do is take into account the full range of impacts to customers clean safe reliable affordable.
And we've got to come up with a global solution.
On how to achieve those objectives and achieve net zero.
I think we're doing that I think the idea somehow that gas should go away in America is really foolish.
No.
Don't undersell, the capability of American technology innovation and solving the problems of the future and when I talk about our new relationship where we want the department of energy broadly the United States government to get in the boat with us to achieve this loss the net.
Zero goal some of that may be funding.
More important net zero technologies, whether that storage whether that is carbon removal, whether its new nuclear you name it.
We are by far I think the biggest proprietary research and development shop in America, where one of the biggest spenders of pretty I'm, a former vice chair. We've had several chairs I think Stan Connally is now starting his second chairmanship of that effort I think we are by far the biggest energy partner.
In technology development with Doa look what we need to do as a nation is invest in technology innovation and solve these problems, saying that given today's state of nature, we can't do gas in the future is foolish given the amount of gas the plentiful supply and the Geo political national security interest.
We have in providing that and know that geopolitical interest is not just parochial for the United States now that Russia has weaponized their gas supply to Europe , how can Europe ever feel secure and having them as a trading partner, we need to step up to the plate and help solve the global problem here.
The old idea it was Thomas Friedman the world is flat or whatever that is the world is not flat. It's full of perturbations and we may see a new global economy emerge where there are countries that are aligned with our national interest and perhaps those that arent and we will see how that evolves, but boy Oh boy. It is clear to me from a.
Why chain standpoint commodity development standpoint energy can be one of the most important economic development activity in the United States can do not only to keep things cheap and plentiful here, but provide us national security around the globe.
Thanks for all your thoughts how I'll leave it there.
Thanks Todd.
Our next question comes from Centroid Banerjea with Barclays. You May proceed with your question.
Sure Julian Great to have you with us.
Thank you good afternoon, guys. So a couple of questions just on the debt issue inside for southern power no debt issuance needs, there, but some maturities coming up so indicating deleveraging there and could you remind us what the credit metric targets are and then.
Just thinking about the future for southern power.
Consider that a core part of southern's broader decarbonization strategy.
So on the <unk>.
I wouldn't think about it as deleveraging per se syringeal, we're maintaining kind of continuous metrics there and so that was what was the second part of your question, we're targeting about a 22%.
<unk> to debt over time, and so we're simply as were.
We are getting the cash flow, we're retiring that debt and recapitalizing the business to support that.
And then on the second.
Yeah on the second part look the southern powers.
Has been and continues to be an important part of the family or we've always kind of considered at our core business and we will continue to operate though and its risk profile and its earnings profile is all consistent with what we think we have here long term contracts credit worthy counterparties bilateral minimal to no fuel or <unk>.
Transmission risk.
Those kinds of things.
Perfect. Thank you and we don't lack of automated market.
Go ahead go ahead got it got it and just one last one just on Georgia power issuance needs I think thats still slated at one 5 billion just given some of the credit market conditions. So far.
Any thoughts on whether you would look at long dated or more front end maturities there.
Yes, we don't want to front run anything that we might do in the markets. There sure enjoy I mean, we're always looking across the curve trying to figure out what fits best in.
Let's wait till we come to market with that to see what we end up doing and I'll just complement dance team.
You look at our portfolio I think we have it in the background material that 18 year average life three.
$3 five kind of average coupon. This is one of the more valuable debt portfolios in the United States. It is a real asset to us.
Thank you very much.
Thank you Sir.
And that will conclude today's question and answer session. So are there any closing remarks.
Well my only closing remark would be thank you all for joining us we're off to an awfully good start this year.
Certainly in our financials and our base business, but also with plant Vogel.
Units three and four we continue to work very hard to execute.
So far this year will continue to work hard to the rest of the year and bring this thing home.
Thanks, everyone for joining us.
Okay.
Thank you, Sir ladies and gentlemen, this concludes the southern company first quarter 2002.
Earnings call you may now disconnect.
Okay.
Okay.