Q2 2022 Southern Co Earnings Call

Good afternoon My name is Tommy.

And I'll be your conference operator today.

At this time I would like to welcome everyone to the southern company.

<unk> quarter 2022 earnings call all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there'll be a question and answer session.

I'd now like to return the call over to Mr. Scott Gammill Investor Relations Director. Please go right ahead Sir.

Thank you Tommy good afternoon, and welcome to Southern Company's second quarter 2022 earnings call. Joining me today are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company, and Dan Tucker Chief Financial Officer.

Let me remind you we'll be making forward looking statements today in addition to providing historical information.

Various important factors could cause actual results to differ materially from those indicated in the forward looking statements, including those discussed in our Form 10-K form 10, Qs and subsequent filings.

In addition, we will present non-GAAP financial information on this call reconciliations to the applicable GAAP measure are included in the financial information We released this morning.

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 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 second quarter meaningfully ahead of the estimate provided last quarter.

Economies within our southeast service territories remain strong 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'd first like to provide an update on our recent progress at plant Vogtle units three and four the projected completion timeline forecast for both units remains within the ranges we provided the last two quarters although.

So at the end of those ranges.

At unit three we continued to progress with all necessary systems turned over from construction to testing.

All inspection records related to I tax complete and that's the middle 51, I tax since our last earnings call, including two which were just filed this morning.

Two I tax remain outstanding.

Concurrent with our final I tax of metals, we plan to submit the all I'd tack complete letter.

To the NRC for unit three.

There's some middle should position us for receipt of the historic one O three G. Finding from the NRC a few weeks later documenting that license acceptance criteria for unit three have been met.

Upon receipt of the one O three G. Finding from the NRC no further NRC findings are necessary for southern nuclear to load fuel or begin the startup sequence.

Received the one O three G letter is an important milestone.

But there's still more work to do before we load fuel.

In the weeks ahead, we will be focusing on testing and surveillance demobilization, finishing work and documentation.

To support an in service date at the end of the first quarter of 2023, we will need to complete this work and load fuel by the end of October .

Yeah.

Turning to unit four direct construction is now approximately 96% complete and progress continues in advance of cold Hydro testing and hot functional testing electrical.

Gold production in particular, electrical terminations continues to be a key area of focus.

We continue to add resources onsite for this work and we have a plan for transitioning electrical field engineers from unit three as we continue our focus on increasing productivity and ensuring first quality first time to support the upcoming testing and long term operations tie.

Timely unit three fuel load and startup along with a sustained improvement in unit four electrical production over the next several months as necessary to support our December 2023 in service objective.

Moving now to cost at the end of the second quarter, Georgia power recorded an after tax charge of $39 million, including replenishment of contingency and estimated incremental co owners sharing impacts.

Contingency allocated during the quarter is primarily related to procurement activities for remediation and a revised resource plan for unit four that reflects updated productivity assumptions and the planned increase in Kraft and support resources.

We're excited about the progress that we've seen at the site over the last several months and look forward to the transition of unit three from construction to operations in the weeks ahead.

Dan I will turn the call over to you.

Thanks, Tom and good afternoon, everyone.

As Tom mentioned, we had a very strong quarter with adjusted earnings of $1 seven per share 23 cents higher than last year and 27 cents above our estimate.

The primary drivers for the increases compared to last year, and our estimate our higher revenues associated with higher usage changes in rates and pricing and warmer than normal weather at our regulated electric utilities. These.

These revenue effects were partially offset by higher interest expense and depreciation along with higher non fuel O&M consistent with the rising cost environment, and our long term commitment to reliability and resilience.

A detailed reconciliation of our reported and adjusted results as compared to 2021 is included in today's release and earnings package.

Turning now to retail electricity sales and the economy in the second quarter 2022 weather normal retail sales were 2.3% higher than the second quarter of 2021. This increase reflects stronger sales across all three customer classes as we continue to see expansion.

Across our southeast electric service territories.

We also continue to see robust customer growth with the addition of 12000 residential electric customers and 7000 residential gas customers during the quarter we.

We remain encouraged by these trends and are continuing to monitor the potential impacts of supply chain constraints labor force participation and inflation pressures on our outlook.

Economic development within our service territories remains robust with Alabama, seeing a 10 year high in jobs and capital investment announcements during the quarter led by announcements from Hyundai Novellus and Airbus.

Additionally, recent electric vehicle plant announcements in Georgia from Hyundai and Ribena.

Represent the largest economic development projects in the states history.

These two projects alone are expected to create nearly 16000 jobs and over $10 billion of capital investment across the state.

As we highlighted last quarter the port of Savannah continues to show strength with the container volume growth.

During the first quarter accelerating in the second quarter as a result of U S consumer demand and the diversion of vessels from other ports driving record cargo levels in June we've.

We remain encouraged by the level of economic development within our service territories, and we continue to partner with each of our states to attract new businesses.

With our solid adjusted results through the first half of the year, we are well positioned as we head into the peak electric load season, our estimate for the third quarter of 2022 is $1 32 per share on an adjusted basis and consistent with historical practice, we will address earnings for the year relative to our.

E P. S E T S guidance after the third quarter.

Before turning the call back over to Tom.

I would like to briefly highlight Georgia, Power's 2022 integrated resource plan or <unk>, which was unanimously unanimously approved by the Georgia Public Service Commission last week.

Recall, Georgia power files and IOP every three years outlining the companys plan to continue delivering clean safe reliable and affordable energy to its 2.7 million customers over the next several decades.

The approved plan includes the addition of 'twenty 300 megawatts of new renewable resources as part of Georgia, Power's long term plan to double its renewable generation by adding an additional 6000 megawatts by 2035.

The plan also approves. The addition of over 750 megawatts of battery energy storage projects. The retirement of over 1500 megawatts of coal by 2028, and the continuation of existing grid investment and Ash pond closure programs.

Additionally, the approved IOP continues, Georgia, Power's Hydro modernization program and authorizes initiating a license renewal application for plant hatch each.

Each of which will extend the lives of these important carbon free energy resources for the benefit of customers the.

The expected capital expenditures associated with approval of the ERP are consistent with the capital plan that we laid out on our fourth quarter earnings call in February Tom I'll now turn the call back to you. Thanks.

Thanks, Dan.

For more than five decades, Southern company's World Class Research and development organization has remained at the forefront of innovation to build the future of energy today I'd like to take a moment to highlight a couple of recent R&D announcements.

Last month, Georgia power and Mitsubishi power.

Along with the electric power Research Institute successfully blended 20% hydrogen fuel at Georgia, Power's plant Mcdonough, representing the world's largest hydrogen fuel blending demonstration project to date.

On an advanced class gas turbine.

This demonstration project helped pave the way for a long term clean and carbon free use for existing natural gas generating infrastructure. Additionally.

Additionally, in Alabama Southern company continues to manage the national carbon capture center for the Department of energy, which recently surpassed 128000 hours of testing and has expanded its focus on advancing carbon capture for natural gas power generation.

Carbon utilization and technology enhanced solutions, such as direct air capture.

In fact, our low carbon concrete technology developed by carbon X Prize winner UCLA and carbon build reach.

Recently achieved its first commercialization deal bolstered by successful testing at the center.

We are proud of the legacy created by R&D group over the last 50 years and look forward to continuing this important work for many years to come.

In closing I'd like to take a moment to highlight southern company's generating fleet and power delivery system, which performed exceedingly well through June is extremely hot weather.

During what was the second hottest June in 50 years, we were able to maintain sufficient generating capacity reserves across daily peaks include.

Including six days, which peaked over 40000 megawatts and an all time peak load of 41376 megawatts on June 15th.

Delivering these results requires effective long term planning that is best facilitated in a vertically integrated state regulated markets, coupled with real time coordination between our plants and our system operators and I'd be remiss, if I didn't recognize the performance of our covered workers.

Who once again performed during these times of duress in an exemplary manner.

I'm proud of our team's continued outstanding performance during times, when our customers need us the most.

Thank you for joining us this afternoon, operator, we're now ready to take questions.

Thank you very much.

You like to register a question. Please press the one four by the four on your telephone.

Tom prop Tech Nash request, if question hasn't been asked or after draw. Your restoration is the one followed by the three.

One moment please for our first question.

And we'll get to our first question on the line I guess I'm, a sharp heroes out with Guggenheim Partners go right ahead.

Hey, guys. How are you not too bad how are you doing.

Awesome.

Great.

Just two quick ones for you Tom just on the IR P. Obviously, a decision on the bone plant was pushed out to 'twenty five what do you sort of think is kind of the most viable pathway forward. There at 1800 megawatts. It's sizable can you converted to gas can you get firm transmission on a pipe.

Or if you went with more renewables can you just maybe remind us of the amount of transmission. You've said you would be needed in the time it would take to build it to make solar an option there just given that the plants and in the northern location. Thanks.

Sure you hit the nail on the head.

You know my my overarching comment here is that our long term strategy as our system remains robust and strong commitment to net zero by 2050 is in place.

I think the beauty of how we work with the commission and the staff and frankly all of our stakeholders.

Something that allows us to respond to the kind of exogenous factors.

That that really impact us from a tactical standpoint, obviously fuel markets had changed inflation is change supply chains have changed and so I think the the wisdom of the commission S cases is a perfectly warranted and pushing that decision forward I don't want to certainly pre.

Judge what we don't know at this point, but I will say the two options you outlined are very reasonable one is to think about keeping generation in the northern part of our state you know that our big load zinc is Atlanta and so the Bowen units historically it played a really important part.

And kind of balancing the load between north and south where we to continue to shut down those units you would need to think about replacement, obviously gas has an option north.

More renewables north could play a role as you know our big answer on renewables across the system is most likely solar not win just we don't have the climate to do widespread wind and maybe these tall turbines will come to fruition or not who knows.

So failing that.

Putting more solar in the south part of the state with a much better terrain.

It does make sense.

In order to locate more generation in the state in order to balance the needs in the north we will need to build significant transmission.

The beauty of our market structure here is we are allowed to iterate among and between generation and.

Transmission as an optimal portfolio solution.

The so called organized markets had difficulty doing that.

So this is a topic of conversation.

I think we will handle it in the future.

Got it got it.

Thank you for that and then just lastly on Vogel with sort of eight months left to hit your unit three target for attacks. The NRC letter likely doesn't seem like it's a major hindrance and then and then you have fuel load expected in November can you just elaborate sort of on those interim steps that you think could be more comp.

Plex post fuel load, which still gives you about a four or five months cushion to your Q1 target date, I mean, I hate to say this but can the plant actually be ahead of schedule here.

Yeah, I would hate to say that she was then I have a good day.

[laughter] I don't want to get everyone excited.

Yeah right right, if we don't either you know.

We're guiding you all to say that we feel comfortable within the range that we've laid out I guess two calls ago.

The schedule calls for a completion by end of March twenty-three, here's here's kind of where we are we have two I tax remaining.

<unk> four and.

And I believe we'll finish those in days not weeks I think these things are reasonably imminent.

Then we will file concurrently for the letter requesting the one O three G.

Let her to be issued by the NRC.

We think the NRC has plenty of.

Our capability to handle that within their timeframe, which I think as we've laid out at a Max of 17 days.

Really I think the greater pacing factor to fuel load is now not I tax. It is the rest of the work we need to finish on our own.

To to began fuel load and then began the initial operation of the plant.

As I had mentioned before and Dan can help me here too there are four kind of big categories. We're thinking about in terms of the scope of that work.

One is demobilization of second is testing and surveillance. The third is just finishing the work and we already have in place and then the final one we've talked to you about is documentation getting the paper right.

Simple examples of some of those things demobilization.

It is taking down things like scaffolding and you know.

Taking any of the spare parts that we have laying around the site and moving those off so that at the end of the day the work rooms and everything within unit three will meet nuclear standards in terms of operation Dan do you want to add anything else. There I think that's a great example of demobilization of the scaffolding temporary.

Lighting is a similar example testing and surveillance activities documentation I think those are pretty obvious part of the finishing work really gets to what Tom alluded to but its doing coatings. It is getting particularly containment to this pristine condition to get ready for fuel load.

Those activities that frankly have a logical sequence to them and it just takes time to work through and now is the time to do that work. There's nothing unusual about the work ahead, we needed to finish the safety related I tax and now we finished that stuff looked the whole exciting transition. We have here is moving this plant from transition to operations and we have.

On a site to that now.

Terrific. Thank you guys very helpful. Appreciate it congrats Tom.

Thank you.

Okay.

Thank you very much placebo and our next question on the line is from Steve Fleishman with Wolfe Research go right ahead.

Hey, Dave.

Hey, Tom good to hear you.

So just a.

Cover.

Last second question here just since we just got this potential.

Potential new inflation reduction bill.

Any thoughts on a you know you've been very right about this not happening and now suddenly there's a chance it might just do you think.

This now can happen that mentions on board.

And then just implications.

For southern across.

Different ways, it would impact you or your customers.

Sure you bet.

Let me give you the net it's it's all good.

Let me go back to what I said before I never say it wouldn't happen I said the deal physics, where hard.

And let's just kind of replay the cards as we've worked relentlessly on the hill, whether it's Congress or in the administration and frankly, our stakeholder groups environmental et cetera.

The deal physics, we're getting tough because we were entering this period of inflation and I won't say Senator Manchin had his eye on inflation, a long time before a lot of other people did and so the idea of spending more money in light of inflation pressures and I guess, the latest announcement was 9% or so.

He is really something that is concerning.

So the way that you get to promote this kind of bill is to include within it tasteful wars that will offset whatever inflationary pressures may arise from the increased spending and as you can see from the proposal right now.

Leave it as a proposal.

There's an additional I don't know 300 million billion dollars of pay for us. So hopefully it speaks to the need to not make this an additional log on the inflationary fire.

The second kind of.

Interesting exhaustion is variable is the specter of a recession.

And I think what has been concerning many people.

Is that.

Adding taxes at this time may be another domino to fall that may increase your likelihood of entering into a recession now we've just heard this morning.

That the United States is in technical recession that is two G D P quarters negative in growth.

But if you look at our numbers and I leave it to Dan or whatever he kind of did a nice summary in the script.

We're not seeing any indicators of recession right now that certainly the historic numbers that bring us up to date for the quarter.

Our way better than what we expected.

Further when you look at the data Dan referenced with respect to our headlights, if you will our economic development activity.

You know you're talking over 300%.

Of job growth in the backlog and your talking nearly 700% of capital investment.

And you're talking about things like ribbon and you're talking about more easy development and you're talking about data centers, we don't see the specter of a recession right now now I'd like for Dan to comment a little bit. He does this economic roundtable just got through with it other people are seeing some regions reasons to be cautious.

And maybe that's cautious and the first part of 2023.

Dan why don't you give us a burst on the round table. Yeah. So just as a reminder for folks you know we've done this for over a decade and what we do a couple of times a year is bringing in folks from regional universities large financial institutions, and then frankly, a lot of representation from a cross sector across.

Sector representation from our customer base. So you know we had railroads in the room we had.

<unk>.

Manufacturing companies once they get involved with housing we had consumer goods across the board.

And you.

To Tom's point there there was this backdrop of yes. It was.

Session is looming, but a very clear acknowledgment that what you may.

Find yourself in a place where there's very clear geographic or regional differences as you enter into that period and endurance. So Tom's right everything we're seeing provides a lot of tailwind for us we're in terrific shape things could certainly change, but everything we see now every indication and if you look at slide 10 of our deck.

Power sales manifested during the quarter relative to what we expected were in terrific shape and even those industrial results. Dan included two pretty big plant closures, one Olin chemical and the other one was really red resolute.

A newspaper manufacturer that was in Georgia, and so absent those guys Gee Whiz I mean, it would have been certainly higher than three 7% the momentum numbers look good.

So we just don't have the data doesn't support a recession alright now we raised the issue on the last call.

In light of the recession that there may be the likelihood of a national recession, where the southeast remains robust and growing.

So.

We just don't see that right now now.

I will say.

We do see inflation, and particularly in the food and energy markets and that hurts our customer. So this is not an environment without duress.

And it's those factors I would say inflation and potential for a recession and what the other exogenous variables may be I mean.

What is the future of Ukraine, and what is the unwinding of the supply chain problems and how will that visit the United States in the future are all key variables.

What has changed a bit has been this narrative of Aro.

Are we really in a technical recession does that really reflect the strength of the economy.

Theres pretty good arguments on each side.

I would argue that the southeast given our strong foundation is going to be better able to weather. This than many places Allison the United States I think the conclusion of the people that have come up with this legislation is also.

That.

This is an inflationary byatt structure.

And the tax increases, which don't impact us very much and I'll speak to some of the pieces of this legislation.

And how would I respect Sutter.

Probably aren't going to be enough to tip very further into recessionary territory. They tend to believe more of a qualitative not quantitative story.

With respect of southern.

Good Havent this looks really good the when you look at the energy security and climate change pieces of the legislation that 369 billion or so.

Gosh, it's very helpful to us.

You know that the move from investment tax credits of production tax credits is very favorable.

To US you know our favorite kind of renewable over the years or call. It one time.

We were the largest owner of solar in the United States, We've recycled some capital I never particularly liked having to live off the I T. C characteristics. So moving to P. T. C is really a good thing and when you look at the Georgia AARP solar plays an important part in our future. So that's really good stuff recall.

I'll also our R&D for storage.

We've already mentioned.

Our importance of carbon capture science. So the 45 Q credits are great.

Here's the big thing, though.

If I had to write a headline on all of those benefits I would say that.

This is really beneficial to our customers and should reduce the cost of the transition from the fleet today to the net zero long term strategy in the future.

There are some other things in there that are kind of attractive.

The tax credits in there for a purchase of electric vehicles, whether they're used or new.

There are some other things in there for hydrogen.

A variety of other things so what about the negatives what about the pay force.

If you look at the kind of the list of that leading the charts is this 15% corporate minimum book tax.

I'll probably leave this for the guys in the boiler room after the call.

But I am prepared state with examples that will show you that the difference between tax taxes and book taxes to us.

Is almost nothing.

You know a company as big as ours with $23 billion of revenue and all that other stuff the differences in taxes paid.

It's just really small and it's like half of a percent kind of as an estimate it's almost you can't see at $5 million $10 million almost nothing now of course is that travels over time depends on a host of factors.

But to us.

This alternative book tax just doesn't have a material impact to the company's okay.

It will be interesting to see what happens on the prescription drug pricing reform and some of these other things.

I just don't have enough there and everything I should say should be underscored with the admonition.

That we really haven't been through the 700 page document as thoroughly as we will.

What we're giving you our our first thoughts on what it appears to be to US Dan do you want to say anything there now.

No I think we'd see if Steve has any follow ups.

Yeah, I guess my one my one follow up on this question would be.

Again as your judgment, but you need every Democrat to.

To support it.

Password Association, just the likelihood that I guess, particularly cinemark or.

Or the risk of someone falls off in terms of it getting done.

I think cinema becomes a really important person now.

I don't know how involved she has been.

So far on the creation of this agreement.

Frankly between mansion and Schumer so.

Her.

This is going to be extremely important and I know she has been.

Very hawkish on raising taxes, so we will see.

In the house, that's not even.

Put that in the win column, just yet because I know that a lot of the house Democrats have had a lot of.

I don't know requests desires for a change in tax policy, including.

Things like a surtax on the wealthy including Salt relief, you know the state and local tax relief Theres no additional taxes on small businesses. So there's a lot on the Democrat side in the house that's not in this bill.

Still has to be negotiated.

So we'll see how that goes.

Great well. Thank you very much are always helpful. On these things I appreciate it.

Thank you Sir.

And well go to our next question on the line.

Julien Dumoulin Smith Bank of America is quite high.

Hey, Joe.

Hi.

Absolutely. Thanks for the time appreciate it too.

Go to Chad Hey, so.

If we can't just what are the negotiations stand.

The lawsuit filed by the corners, playing into the timing of resolution here I mean, just you previously pointing to the summer time broadly I get where still in seventh resolution, but what's your expectation on that being extended if you will just have to come back very squarely on this and sort of the parameters at this point.

Yeah, Julian I don't think we expect anything in the near term there I think there's this.

Plays out you know I wouldn't be surprised that moved the business court in Georgia, and the resolution could be hacked second half of 'twenty three I don't think we'll know anything in the near term yeah. The one near term data point Julian as there is in all of its 27th date by which we will know whether <unk> plans to tender their portion is what we've heard.

From Oh, with orphan Dalton and Mag still needs to work through their process and let us know one way or the other.

Got it okay. That's there's more profound Terry I understood Alright, excellent and then actually.

Let me ask you. This I mean, just how do you think about addressing the opportunity about owning renewables, whether you know through these RFP processes are just kind of stepping in at some point.

After rfps have been awarded here to expand your ownership and again I get that you've got a certain allocation already in southern power, but is there any regulatory solution. When you think about GA here that you can address or talk to a little bit I think shar was kind of a certainly a moment ago.

Yeah Man certainly go into the P. T C. Certainly makes it more competitive and have.

More attractive.

<unk>.

For our operating companies to own this stuff so that that's really helpful.

We're all in and of course southern power cant compete for the new megawatts are particularly solar in the state.

So on the margin everything that we see in this.

Potential settlement.

It looks good for us, we're very happy with it.

Got it so perhaps the shift to in other words.

It really will go for it.

I would also say that we have been engaged in conversations and it's like I say I mean with the administration with any stakeholder with Congress for months.

So to the extent they arrived at a resolution is a surprising I don't know I think it depends on how you view this inflation versus recession pressure issue to pay for certain I speak to the inflation and I think the judgment on the ability of the United States economy to withstand the tax increases is really.

What's going to get us over the line.

I just think on the margin. This is good stuff for us.

Right and to be extra clear about this the solar PTT sort of opens up the window of eligibility, especially given how punchy itc's can be not just for southern power, but more specifically ear for Georgia, Our Georgia power.

Sure Doug Yeah for all of our regulated utilities that are always going to make the economic choice for customers and what the peace tea C. Does is make cellphone that much more economic so I think our competitiveness has definitely improved if this goes through.

Understood excellent guys I'll leave it there best of luck here.

Hey, Thank you Bobby appreciate you joining us.

Thank you what could turn next question on the line is from David Arcaro with Morgan Stanley go right ahead.

Welcome. Thank you for joining us.

Hey, Thanks, so much for taking my question.

I was wondering just back on Vogel could you just talk a little bit about the labor backdrop, maybe specifically on unit four and if you're facing any labor tightness.

He kind of turnover churn issues there as you start to maybe ramp up and bring people back to that site and accelerate the work there.

You know in general you know a lot of that goes to compensation I think were top decile, we measure ourselves all the time and so the compensation issues are pretty well spoken for I think you always have.

Kind of a worry that as you finish conclusion of work that people will start leaving to go to other more sustained work, we're keeping our eye on that and we think we have that spoken for we measure our churn statistics you know virtually every day report every week and they're within our.

Our expectations right now.

We are adding people to the site with relative ease.

The interesting issue there will be you may remember us talking a lot about attracting electrician, we're able to do that now I think the more important point for us is as we wrap up.

Work on three it frees people from three to move to four and it's not just folks that will do particularly electrical termination, we're ramping that up in a big way its engineering and supervisory people that will make the increase in people on unit four more efficient.

Those are necessary to achieve the ramp up schedule that we expect to see Oh I don't know over the next 10 to 12 weeks or so.

So that really is in I think it is this idea of advancing on three freeing people up moving those resources to four and increasing our productivity.

Got it thanks that's helpful.

And I guess, maybe any any latest thoughts on.

On a potential for a settlement around prudency or the time frame for when you might be able to start those discussions with other parties and intervenors here.

Is getting closer to fuel load on unit three still.

It's still a focus before that becomes maybe.

Closer in time to being next up.

Settlement is always an option, but boy, we don't want to.

Get in front of that or so we'll just let it go as you may remember the official schedule calls for Prudence to began on fuel load for unit four and we kind of expect that and what summer next year.

So that's the official date to have a prudency hearing or begin that.

Process.

Yeah, we could settle in advance of that but I'm not going to front run that issue here.

Okay got it understood. Thanks, so much.

Thank you Sir.

And what gets her next question on the line.

From Jeremy Tonet with J P. Morgan. Please go right ahead.

Hi, good afternoon.

Hey, thanks for.

Thanks for having me.

Just wanted to touch on that.

The guidance a little bit here, if I could and just wanted to see any updated thoughts you have I mean, just being so far ahead this past quarter.

You know how do you see yourself positioned credit guidance raise.

Be in the cards, if things continue current trends continue.

Hey, Jeremy this is Dan so look as we always do we'll will narrow down our year end expectations during the third quarter call, but it is clear that our year to date performance has positioned us really well to deliver strong results, but what it also does is position us really well to mitigate our operational and financial risk in future years.

So we're going to take every opportunity we have to fix the roof. While the Sun is shining if you will and if you look at our history of O&M spending in the electric business, there's almost never such a thing as a normal year, we build flexibility into our programs. So that we can accelerate maintenance activities when we have higher than expected revenues.

For whether our customer growth or strong economic activity and then Conversely in those years that inevitably happen where weather economic activity are below our expectations are or even recently a pandemic.

You know we have the flexibility to curtail in those years, knowing what we've done in years prior to get ready.

Over time this all balances out in the system remains in great shape to serve customers and our financial results are a lot less volatile than they might have otherwise been. Additionally.

Additionally, and very importantly, many of our regulatory frameworks have backstops, whereby better than expected results accrue to the benefits of our customers through the various rate or rebate mechanisms.

So just so I would just say stay tuned for the third quarter, but know that we're doing everything we can to <unk>.

Improve and Derisk future years.

Yeah got it exactly right yes.

Yes.

Just a little bit of clarity there too. It's inescapable. We're way ahead of where we thought we would be I mean were what 37 cents up on the first six months, we're not going to be 37 cents over at the end of the year at the dance trying to say I mean I'd be disappointed if we werent you know improved and the range or whatever but we've just sticking with our practice of.

Really giving you the firm guidance on our range in the next earnings call.

Got it got it.

So far as terrific Yeah, we're doing great.

Thank you for that and then just one last one if I could.

Realize that everything is new here is you talked about.

The news last night out of D C, but any thoughts with regards to our regulated nuclear eligibility for PTC here that you might be willing to share with us.

Yeah, it's slim.

You know I think that language was designed to help <unk> plants under duress.

Ours haven't been under duress.

So I don't think it's a big deal.

And recall that we already have production tax credits in place.

For Vogtle, three and four so really the application of Oh, the wanted to Farley our hatch.

Slim to none.

That's our view right now.

Got it I'll leave it there thank you.

Thank you Sir.

Thank you and our next question on the line from Michael Lapides with Goldman Sachs go right ahead.

Michael always glad to have you with it.

And thank you for having me.

Dan a question for you the Mcdonough discussion early in the call about blending hydrogen.

Can you just talk about both for hydrogen in your in your gas power plants, but also for our in G. For your gas utilities, how should we think about what kind of the steps that have to happen.

<unk> broad steps that have to happen for those to become.

<unk> type investment opportunities for the southern family of companies.

Yeah, you know, what but I I think that while some people have been breathlessly optimistic about hydrogen and I would argue we're doing the most research and the most kind of real money behind our words.

We think hydrogen has a great place, particularly in blending with kind of methane fuels as we're demonstrating here in Mcintosh and then as we're looking at with the new plant that we may be building in Alabama, the blend hydrogen.

Those are great applications, and we like them, okay, but I think the real issue in terms of near term impact is going to be the classic chicken or the egg who's going to generate the hydrogen and how do we move. It now we are doing also lots of research on the gas side. So we're looking at you know as we add.

Safety related pipeline replacement programs and in southern gas is it suitable to think about moving.

Hydrogen through those facilities, we're certainly thinking about that.

Got it and then my.

Oh, Okay sorry.

I'd say Michael just.

Along the same lines as what we've been talking about on the call around renewables and what this is.

Green Dot with mansion Schumer may how that may benefit renewables something similar may be needed for our N. G. Since you asked about that to make it equally affordable for customers.

Yeah I was under the impression that there is an R&D ITC and that's still and but just kind of curious for your thoughts about if there is some kind of tax credit for LNG, whether that's enough to make R&D really a.

Material opportunity for the southern gas utility.

Dan.

I don't know, where we need to dive through the material, we're kind of looking at each other going at I don't know yeah. I mean, when you said material, it's hard to hard to see it being material in the near term, yes, I really think hydrogen is a good idea, but it's probably in the thirties.

Got it okay. Thank you guys much appreciate it.

Thank you my friend.

Our next question on the line from Nick Campanella with Credit Suisse go right ahead.

Hey, Nick how are you, Hey, Hey, hey, thanks for taking the questions a lot have been answered and I appreciate the updates.

I guess just.

What's different about this quarter as you guys kind of moved off the ranges to target specific quarters for for in service dates so.

Is that just kind of like the cadence of how you plan to kind of communicate.

Isd at this point or are you going to eventually kind of move back to a range on unit four.

I think it's currently Q4 'twenty three if I'm not mistaken for unit four today.

We gave a lot of thought to that.

No.

We provided the guidance plus three months plus six months and as we look at the progress on three that has a lot to say about four okay and let me give you an example.

So as we began fuel load and startup of three the same kind of personnel that will be devoted to that activity will also be devoted to H F T and in unit four.

There can be overlap there, particularly say in the second half of startup maybe this the last 25% of startup so let's just take.

Our calendar.

We've suggested that we could have you'll before October .

And that would permit.

By March.

If the same personnel are starting to get freed up in the second half by February by January somewhere in there that would suggest you could accelerate hot functional test on for from the calendar that we're showing you on page six.

So all we're trying to say is the timing of three has a lot to do with the timing of four.

And to the extent, we're successful on accelerating three prior to March or have the people available at the end of startup of three prior to March we can start hot functional testing sooner in the critical path, we indicate on page six that reach.

Really is I think what is mostly behind our comment on schedule right now.

Okay, great Yeah I just.

I wasn't sure. If you just had to like enough enough line of sight, where you were you know you were kind of comfortable in and like nailing down a quarter here. So well well you know I mean I would almost describe it this way I think we got line of sight on three I think we have reasonable expectations on four we admit that there's lots of variables on for.

We'll certainly keep you abreast of those developments as they occur right now we believe we're reasonably comfortable within the ranges we are expecting an improvement in productivity on four so we'll be watching that in the very near term well more to say about that certainly next quarter.

Okay got it and then I guess when you gave these.

He's in service date ranges you also kind of talked about like like $4 to 430 of EPS in 2024, and now that we're kind of at the end if it does that guidance still hold here today.

Okay.

Yeah look we are where we were but the reason we put out a range. Nick is because there's you know it was three years away and there's a lot of moving parts. So you know look you see what's happening around inflation and interest rates you see that we've got a significant regulatory calendar ahead of us we recognize that there.

There was a lot of uncertainty and as those things get buttoned up and we get closer to 'twenty 'twenty four will narrow in on exactly where within that range. We are.

Yeah, but I think we're still within the range.

You know the biggest change I guess, Dan that we see as interest rates, particularly cost of interest costs at the parent.

But you know we'll certainly.

We update that at our year end earnings call, but I would say that you know.

It is a range and Dan mentioned, we will tell you where we are within the range I don't see any reason to change it now but.

Within that expectation as a result of the Georgia rate case anything to do with the economy or a recession, you know a host of variables, but everything we know right now we're still within the range.

Awesome and I think I'll leave it there thanks again for the time.

You bet. Thank you.

And we'll get to our next question on the line here.

From <unk> Chopra with Evercore ISI go right ahead.

Thanks for joining us welcome.

Thanks, Tom I wanted to pick your brain just for little bit more.

On the clean energy Bill.

So obviously I mean, there's a lot to like here for utility generally speaking.

But sort of when I compare this to sort of the build back better or worse than the plan.

There's no direct bay for utilities doesn't look like you till there is that eligible for that.

Also.

No transmission.

Investment tax credit as far as I can sort of see through the bill.

And then obviously you have the 15% minimum tax could you guys talk to is not a material impact for you, but he is vishal.

Visually kind of.

Oppose that if you will so I'm just wondering that you know.

Is there a chance for the industry.

E I broadly here to kind of influence is influenced certain piece of this legislation or is the process moving too quickly.

You know I think.

I'm, giving you a complete judgment here not fact, alright, my my judgment would say that it's been so hard.

To get to this place and there are still uncertainties out there as I mentioned in response to Steve Fleishman question you know.

You don't have salt relief in here you don't have a surtax.

The wealthy individuals in America.

There are things here that so many people wanted this thing in Kierston sentiment that there are still many unknowns as to whether we can get this across the finish line.

This is a great thing for us and I broadly would say for the industry, adding something else at this point I think is a bridge too far in my opinion, you know and I think.

The inside the beltway people are kind of talking to each other with the frame of mind that don't let the perfect getting the way of the good.

This is pretty good and we hope it crosses the finish line.

Got it.

Thanks for that color and then just really quickly can you just update us on the Georgia rate case filing.

The milestones there still expecting a final decision by year end and kind of the key issues that investors should be watching for.

Yeah, they're guessing again, we don't want to get ahead of any of the process. There is a calendar in the slide deck slide 25, so really the process will start in earnest in mid September with hearings and yes, we still expect a decision by the September I think the only other thing I would say.

It's just as a reminder, this rate cases, largely a continuation of all the elements of the 2019 rate case. It was carrying a lot of those same cap.

Capital initiatives forward.

It's not Vogel its 2019 three years later.

And I'd add reference the Newark report that warrant the industry that have the United States would be under duress with our energy future.

And then your stressed further by this unusual weather, we're having whether that's part of climate change et cetera, the tails appear to be flatter.

Our system has performed beautifully and I think.

Given our relative price position in the United States, given the resilience of our system.

Thank the decisions of the commission in the past and the company had been.

Excellent in respect to benefiting customers long term here in the southeast and its no secret why a lot of data centers and some of the big economic development projects.

Ian and others are coming.

But because of the price because of the resilience because of the long term stability.

Having this kind of constructive regulatory environment benefits long term the economic growth of the South east and that continues to look very robust.

I don't see any reason why it would change at this point.

Got it I appreciate the time, thank you both.

Thank you Hugo.

And we'll go to our next question on the line from Paul Patterson with Glen Rock Associates go right ahead.

Hello, Paul always glad to have you well glad to be here and I'm I'm I'm afraid I'm gonna be following surgery.

And Steve's approach here just for possible you made some comments about.

The new P T C L.

And.

And how do you think it was it's designed for <unk>.

Trouble nuclear plant did I could you elaborate a little bit on that.

I haven't been able to Regal all the legislative text, but it looks to me like it was little bit broader than that.

And.

What you're saying makes it makes logical sense I just wanted to sort of.

To get a better feeling as to.

What you actually see happening there.

Yeah again, so qualifying this Paul this is Dan as you know as it's 700 pages to get through and understand the details and this is based on our <unk>.

High level review of similar provisions and N B B b.

The legislation of essentially sets and economic floor for nuclear plants and so when you have.

Our regulated nuclear plant that operates in a constructive jurisdiction is recovering its costs on a regular basis, it's unlikely to truly benefit from something that's intended for troubled financially nuclear units.

Okay that makes logical sense.

Just wanted to.

Get a better idea and then also just in terms of the mechanics of the 15%.

I assume that that applies to all corporations within that large category or what have you, but I'm just wondering would that be.

Are they missing something could that be a political problem for <unk>.

The legislation or.

Am I missing something there or do you I mean, you mentioned the salt and all those other things that people I'm sorry go ahead.

Oh man I think youre, absolutely, making a good point I'm, telling you it's good for us.

There will certainly be people in America that don't like this I think Nam has already come out.

And said that this really hurt some of the people in manufacturing in the industry.

You know and you know you kind of expect this that well if it's good for us who isn't it good for and they certainly will weigh in.

And we will see what impact that has.

It is it must be at least.

Zero sum game in order to be positive.

Positives to the scorecard in Congress.

So we're not hurt by it other people are I fully expect that it will provide headwinds to getting it done we'll see if it's enough to sway some votes I don't know.

Okay. Thanks for the clarity I really appreciate it and hang in there.

Thank you Bob Thanks, Paul.

Okay.

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

Yeah. This is an exciting time isn't it we've had a wonderful quarter. We've made great progress on the ion tags. My sense is these next two will be done in a matter of days not months or weeks and a son of a gun were poised to turn this thing over to operations and look forward to fuel.

And so boy that will remove a great deal of risk I think from our portfolio going away, but that does not mean that risk is done we still have to complete the work necessary to fuel load, we still have to improve particularly our performance in electrical performed particularly in the terminations area.

We believe we have reason to expect that performance to actually happen, we'll know reasonably soon whether that's true or not so look.

I think we're as well poised as we can be Dan mentioned the blessing.

The good performance that we've had today 27 cents over versus our own estimate gives us the flexibility to deal with problems in the future including rate pressure. So.

I like our cards here I like the cards that are shown by the robust performance of the southeast.

Connie relative to the national economy.

Now I know you all have to make your bets and we have to do the same in terms of allocating capital I think the allocation of capital from our own sense to our business model and going forward in this manner is really attractive.

So thank you all for joining us this afternoon and look forward to our next call in October see you soon.

Thank you, Sir ladies and gentlemen, this concludes the southern company second quarter 2022 earnings call you may now disconnect.

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