Q3 2022 Southern Co Earnings Call
Yeah.
Good afternoon, My Name's, Scott and I'll be your conference operator today at this time I would like to welcome everyone to the southern company's third quarter 2022 earnings call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session at that time, you can press. The one followed by the four and your telephone to queue up for questions.
I would now like to turn the call over to Mr. Scott Campbell, Vice President Investor Relations and Treasurer. Please go ahead Sir.
Thank you Scott good afternoon, and welcome to Southern company's third quarter 2022 earnings call. Joining me today are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company, and Dan Tucker Chief Financial Officer.
Let me remind you we'll be making forward looking statements. Today. In addition to providing historical information various important factors could cause actual results to differ materially from those indicated in the forward looking statements, including those discussed in our Form 10-K form 10, Qs and subsequent filings.
In addition, we'll provide non-GAAP financial information on this call reconciliations to the applicable GAAP measure are included in the financial information. We released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at Investor <unk> Southern company Dot com at.
At this time I'll turn the call over to Tom Fanning. Thank.
Thank you Scott good afternoon, and thank you for joining us today.
Our third quarter financial results continue to support our full year earnings objectives, and the economies within our service territories remains strong including customer growth and economic activity that has outpaced our expectations.
Given our financial performance through the third quarter, we expect full year adjusted earnings per share near the top of our earnings guidance range.
Before turning the call over to Dan for a more detailed look at our financial performance.
First I'd like to provide an update on the recent progress at plant Vogtle units three and four.
Importantly, the projected completion timeline and capital cost forecast for both units remain consistent with what we outlined last quarter.
Since our last call. The site team has continued to make substantial progress on unit three highlighted by the successful achievement of several major milestones including.
Submitting me all I Tac complete letter.
Receiving the one O three G finding from the NRC, which signifies that license acceptance criteria for unit three have been met.
And successfully completing the safe transfer of all 157 fuel assemblies from unit three spent fuel pool to the reactor core early last week.
Fuel load marked another historic and pivotal milestone towards startup in commercial operations.
The focus over the next couple of months turns to final preparations and testing our system was primarily associated with the electric power production side of the plant.
And achieving the pristine conditions in the nuclear island necessary for start up activities.
The next major milestone for unit three is initial criticality or the first self sustaining nuclear reaction, which is projected in January .
Once this important milestone is achieved plant operators can begin the prescribed testing sequence, which includes a series of power of sanctions and reductions various sustained power output plateaus and multiple force trips to test the units safety systems.
This rigorous process is intended to demonstrate the performance of the unit under a variety of conditions and its readiness to be included and reliable dispatch and to be placed in service for the benefit of customers. We continue to project unit three will be placed in service by the end of the first quarter.
For 2023.
Turning to unit four open vessel testing was completed in August and direct construction is now approximately 97% complete.
Electrical production in particular, electrical terminations remains a key area of focus.
To support our projected December 2023 in service date reached.
Recent electrical production levels must be sustained for several more weeks.
Testing is expected to become the critical path is the project team progresses towards future milestones of cold Hydro testing.
And the start of hot functional testing, which is projected by the end of the first quarter 2023.
Dan I'll now turn the call over to you.
Thanks, Tom and good afternoon, everyone as Tom mentioned, we had a strong quarter with adjusted earnings of one dollar and 31 cents per share eight cents higher than the third quarter of 2021.
The primary drivers for the year over year increase are higher revenues associated with increased usage and retail pricing at our regulated utilities.
These revenue effects were partially offset by higher non fuel O&M expenses consistent with the rising cost environment, and our long term commitment to reliability and resiliency, along with higher interest and share dilution from the mandatory conversion of our equity units a.
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 third quarter 2022 weather normal retail sales were 1.8% higher than in the third quarter 2021.
This increase reflects stronger sales across all three customer classes as we've continued to see expansion across our southeast Electric service territories. We also continued to see robust customer growth with the addition of 11000 residential electric customers and 8000 residential gas customers.
<unk> during the quarter.
We are encouraged by these trends and continue to monitor the potential impacts of supply chain constraints labor force participation and inflation pressures on our outlook.
The economic development pipeline in our service territories remains robust within our electric service territories economic development announcements through the first nine months of 2022 compared to the same period in 2021 reflect a 170% increase in job additions and a 203.
37% increase in business investment.
Next I'd like to provide you with an update on our outlook for the remainder of 2022 with adjusted earnings per share through September of $3.35. We expect to achieve adjusted full year earnings near the top end of our guidance range of $3 52.
To $3 60 per share.
Our adjusted earnings estimate for the fourth quarter is 23 cents per share.
Tom I'll turn the call back over to you. Thanks, Dan.
We remain encouraged by the sustained level of economic development activity within our service territories as we continue a long legacy of partnering with each of our states to attract new business and recognition of these efforts, Alabama power and Georgia power were once again named to site selection magazine's top 20 utilities.
In economic development out of approximately 3330 utilities across the United States based on capital investment and job creation activity. We are honored by this recognition and look forward to continuing our commitment to helping our states and communities attracting.
Grow businesses to further strength in the economies within our service territories for years to come.
In closing I would like to take a moment to highlight a significant safety milestone at the Vogtle project achieved this month when the site successfully completed its 68 million job our lost I mean without a lost time incident at <unk>.
68, millionth job hour without a lost time incident.
At Southern company safety represents a key tenet of our uncompromising values and this milestone is a testament to the project teams focused on creating a safety first culture.
I'd like to recognize Sean Mcgarvey from the North American building trades and Lonnie Stephens from the IBEW, along with all of the thousands of individuals that they represent for their tremendous ongoing support at plant Vogtle units three and four these groups have been terrific business partners.
For us in the REIT and achievement of several major milestones as a tribute to the dedication of thousands of men and women committed to bringing vogtle units three and four safely online to provide Georgia with a reliable carbon free resource for the next 60 to 80 years.
Thank you all for joining us this afternoon, operator, we're now ready to take questions.
Thank you if you'd like to register a question. Please press the one followed by the foreign your telephone you'll hear of three told prompt to acknowledge your request. If your question has been answered and you would like to withdraw your Registrational. Please press. The one followed by three if you're using a speaker phone. Please lift your handset for entering your request.
One moment please for the first question.
We have a question from Shar <unk> with Guggenheim Partners. Please go ahead. Your line is open.
Hey, guys.
Okay.
Tom I think you've just got the fastest reward for the quickest prepared remarks, so that was good.
Just.
Well just got made vice president give them all the credit.
There you go.
Just quickly on on the GA G. R. C. I guess, how are discussions going with intervenors I mean, so the staff recommending both a 94 five ROA as well as a reduction in the equity layer when vogels fully in service seems somewhat counter to what we're seeing with capital market conditions.
And kind of the risks that are out there I guess what are your thoughts around a settlement to narrowing that bid ask or do you think this case will likely go to the litigated route.
Well.
Know that this is an accounting orders what it's been since 1995, which means it's not technically kind of a litigated kind of thing.
You know that this process has been in place since 1995 and that it really is I think a process that has been proven tried and true to let every party have their say and have a.
A constructive outcome and I think we've proven that time and time again, you know us commenting on any particular part of anybody's.
Testimony at this point really is a constructive let the process run and I'm sure will be treated in a constructive way at the end of it.
Got it.
Thanks, and then just on vocal were.
Where do things now stand with the other corners in terms of resolving any sort of outstanding cost cap or contribution concerns and I guess, what that ultimately means for your ownership of the projects and so on.
I'll turn this over to Dan hearing justice for some more details, but effectively among and between Oglethorpe and Dalton and me egg. We have reached an agreement a settlement with me.
My sense is Dan you're not going to know anything else about the rest of these likely until the end of next year, Yeah, that's right and so the settlement with <unk> you might see in the materials.
Slight cost revision for Georgia, Power's ownership, and that's really reflective of that settlement our assumptions previously assumed as many of you know this notion of a tender or a put of ownership from any of the co owners and since that was not part of the resolution we reached the.
Kind of our estimate of the impact of the settlement is less than our previous system.
Got it thanks for that and then just lastly, I know you guys had previously talked about Georgia power, just not really being super competitive against third party developers in terms of winning the solar rfps sort of with the tax credit changes you know transferability solar P T.
He sees et cetera that came with the DRA could Georgia power now potentially be able to compete and win a portion of the solar Rfps. We're looking at that Georgia is going to be running and then how do we sort of think about that versus what you assume in the current guide. Thanks.
It's a credit to your question is exactly right any differences, we had were related to tax treatments flow through versus some sort of normalized treatment on the part of Georgia power.
It was interesting I think.
During one of the early rounds in other years.
We had developers take positions and then southern power actually came in and took them out of those positions. So we can compete another way.
My sense is the I R. A is really going to be helpful to all regulated utilities that otherwise use normalized accounting and it does put us much closer.
On an equal footing to those folks the other thing that we always have to take into account, particularly with renewables that have distributed sites across our service territory is that you know southern is reasonably well known for thinking about our expansion plan on a portfolio basis of course each come.
Any reaches its own conclusion within that portfolio.
But those kinds of considerations have to be met and especially when you consider wrapping into that the closure of certain coal plants over time.
So so we'll see how it goes but I think overall the I R. A is really helpful. Dan do you want to add yes.
Yeah. So sure it's important to think about this in terms of the planning horizon right. So this is a longer term dynamic so you're not going to see very much on the front end of the five year plan. Those decisions have already been made there's rfps have already been executed for resources, So you're really talking about the back half or.
Even the last couple of years of our five year forecast, where this opportunity may manifest itself as potentially rate base assets. The other thing that is.
New dynamic that's entering into the equation you know the certainly.
You know kind of a low cost profile is what this these tax benefits change other considerations will begin to factor in to some of these resorts to suit location how much the.
Controllability of them and so it's kind of a difference between the notion of lease costs versus best cost, where there is locational dynamics and other things that play.
And every bit of the I R. A to US just serves to reduce the transition cost of our current position to a net zero future all for the benefit of our customers. We don't make money off tax benefit we typically slows them through for the benefit of customers.
Got it terrific guys. Thanks, so much and we'll see you in a couple of weeks I appreciate it you bet.
Look forward to it.
Our next question is from Ross Fowler with UBS. Please go ahead. Your line is open.
Hey, Ronny.
Good how are you.
So just a couple questions one you know.
And days to weeks away, but we're not gonna have a Georgia election Commission election.
That day. So can you just remind us what the process is from here around redistricting and how that actually works, whether its a statewide or you know district election, and how that would sort of proceed.
I figured it out yeah. There's work ahead for the legislature to undertake.
Most likely through next year. Our sense is this is not going to be something that's kind of.
Reach a conclusion anytime quickly there's going to be a lot of debate and a lot of thoughtful consideration about how to put this into place. So really can't guess on it right now and I really don't have an estimate on any timeframe kept my sense is it's going to take some time and I don't think we're going to get a result, anytime soon and some of that time, maybe because it.
Comes a bit of an iterative process between the legislature in the court.
Thanks, Dan and then through the current commission would sit until that process was complete.
That's correct to understand.
That's right.
Okay, and then just maybe remind us.
As as we're and congratulations I feel though that's a big step.
As we get key you know putting units where you need it for into service how did the how did the arrow penalties.
Overtime in Sudan.
You need it for as Dawn on December 23, and then they're all.
There are no more counties in 2024, if I'm thinking about it correctly.
Sure Ross So again as a reminder, all of our outlook assumes.
Total costs for vocal that goes in at rates of $7.3 billion and so the way that will break down in terms of rolling into base rates, and thus, earning Georgia Power's full allowed Roe.
There's $2.1 billion that will go into rate base. The month. After unit three goes into service and then the remainder following prudence proceeding next year would go into rates. The month. After unit four goes into service and so based on the current schedule.
You'd be it.
Georgia Power's full allowed ROE on seven $3 billion for the full year 2024.
And Dan the penalties now pretty much put you at the cost of debt right with the timing of pallets, how much work right.
Passage of time and the increase in the cost of debt, we're essentially there.
Okay, and then the prudency process you'd mentioned that starts on.
You'll note at unit four.
Eric fuel load.
Summer of 'twenty.
23, alright, thanks, Tom Thanks, Dan Congratulations on fuel.
Always good.
Our next question is from Jeremy Tonet with J P. Morgan. Please go ahead. Your line is open.
Hey, Jeremy how are you.
Good good good afternoon, and thanks for having me.
You touched a bit on it before but as it relates to IRA just wondering are there any other aspects to the bill that impact southern that that you could share with us at this point that you've determined.
Nearly benefits for the customer is very important here for other types of tax credits beyond renewables would that impact our southern or minimum tax just wondering if you could share thoughts on the bill more broadly and its impacts and southern.
The minimum tax thing really ended up not making much of a difference, particularly with the latest change they made.
That that doesn't impact us hardly at all.
It sounds like a policy response, but look longer term, helping with 45, Q and research and development and hydrogen those are all good things that help us get from <unk>.
We've already hit our 50% reduction goal, we put in place in 2030, we hit it a decade early in 'twenty 'twenty getting from 50 to 80, we think we know how to do that to getting from 80 to 100 is where are these things that relate to innovation and research and development will be helpful. Obviously those expenditures will have.
And before they are put into place in particular some of the things that we're interested in are this trade you make in the thirties and forties between nuclear and combined cycle with carbon capture and sequestration and certainly in respect of the cost of adding more renewables is something we're focused on.
All of those provisions as they are addressed in the Bill are helpful. Yeah, and Jeremy I'd say, the other things that were kind of explore.
Exploring and trying to better understand and certainly waiting for IRS guidance is the normalization opt out for storage that's something we're certainly evaluating how that impacts customer rates. The transferability of these tax credits is particularly interesting, especially within southern power, where historically we might have.
Tax equity this creates a new perhaps better.
<unk> in that regard.
You know theres been a lot of discussion about the nuclear P. T C. But we right now as we sit here based on our interpretation don't see that having any meaningful impact for us, but again, we'll wait for guidance on that and see how that turns out and in general what we really like about the idea.
Of this bill is the structure that the credits are effectively technology neutral.
And therefore, let the market work to show what what was best in place for our customers over time.
And you know the the certainty that these are there for the next 10 years provides a lot of flexibility in planning and in the way, we think about our business.
Yeah.
Got it that's all very helpful. I, just wanted to pick up with the part that you talked about nuclear there and saw during the quarter. There was a key milestone with southern company Terrapower as it relates to their a molten chloride past reactor and its just wondering if you could provide us your thoughts as far as when you think that type of technology, you know could come into play.
For utility scale proven up you know what type of timeframe, there and having you know having the ability to ramp up it up and down quickly there I guess the benefits that can provide as part of the pie.
The generation stack.
Yeah, Yeah, I would argue that the.
New nuclear future of of America will likely start with S. M ours.
We hear a lot about people discussing putting small modular reactors into effect I mean that could happen last half of this decade certainly.
The larger Gen. Four reactors that you're referencing to me are kind of mid thirty's and beyond.
Got it that's helpful I'll leave it there thanks.
Thank you.
We have a question from David Arcaro with Morgan Stanley . Please go ahead. Your line is open.
Hey.
Hey, thanks, so much for the time.
<unk>.
I was wondering if you could give a little bit more color around just the updates on unit four.
The timeframe didn't shift just wondering for additional color around how productivity has been relative to recent targets based on just eyeballing. The the green line and the Red line looks like maybe even a little bit ahead over the last few months.
Has there been increasing clarity with the progress that you've made on unit. Three also as you look to unit four.
Well, Dan you and I should tag team. This one as well I will start the.
We're gratified with the progress on electrical terminations, we've always called that one out as a risk factor.
And so long as we sustain our recent performance on the site through say November then we're on track on that issue. So we're watching it very closely we're gratified with the progress. We've made we just need to continue that progress.
Obviously as you've seen with unit three our performance on these tests.
Are particularly important we believe that we've learned a lot from the tests on unit, three and where we had.
Some delays due to equipment issues our system issues. We think we've learned a lot and we don't expect to repeat some of the issues that we saw in here in a three on unit four so our schedule reflects that as well.
Yeah.
Look I think you hit the big issues is testing will become critical path here for unit four in the near term and it is certainly predicated on those lessons learned and it being so we process it and right now the focus is getting the right people focus on unit four in that regard where they've been tied up on unit three completing that work and you know all of these.
Discussions that Dan and I are referencing occur in a completely open and transparent environment. You know we have our co owners with US we have represented some D O Anr see the public Commission staff etcetera, I mean, everybody gets to hear all of this information in the same way and I just think we're gratified.
The progress we've made and we see our way through to remaining comfortable with the timeframes for laying out.
Okay, great. Thanks for that and then separate topic I was just wondering if you could touch on how you're managing interest rate headwinds right now with debt issuances coming next year any ways to hedge against that proactively your other ways that you're looking to manage potential EPS headwinds here.
Well I will say this you know old dog.
All dog doesn't learn new tricks, maybe that's not the right line here, but I'm, an old finance Guy and I really like this stuff I like liability management and I can remember back when drew Evans with C. F O and we were in this low interest rate environment.
We were very intentional about reducing what I call our level of risk capital. That's short term debt debt due within one year of political that all that sort of thing. So we shortened our risk capital we lengthened the duration of our assets and I would argue we do this plot I think it's in your package but.
Southern company that portfolio. When you look at kind of total enterprise value of a corporation is a really valuable asset. Its 18 years long on the average and it has a really cheap coupon rate three and a half or whatever.
These guys have done a really nice job managing it Dan.
Yeah. So Tom's point, we're starting from a great place in that regard we've done things this year to take risk off the table.
Accelerating our upsizing some of our issuances, taking some of the variability out of the portfolio here in the short term we will continue to do those things and then look already in 'twenty two interest rates certainly are having an impact on our results and we've been able to offset that we've got levers within the business to do that and we'll continue to focus on.
On those as we move forward.
Like with any one I mean, we were fairly conservative about our assumptions over the long term and like everyone I'm sure our assumptions in the short term, we're pretty far off but we're managing through that.
Just another issue that we deal with.
Yes.
Yeah, Great now that's helpful. Thanks, so much.
Thank you.
We have a question from Nick Campanella with Credit Suisse. Please go ahead. Your line is open.
Hey, Nick Hope Youre doing great.
I am thank you I hope I hope everyone else is doing good as well. Thanks for thanks for taking the questions I guess just to follow up on that the interest rate kind of commentary and you know.
I'm really just kind of thinking about through next year and the drivers of a twenty-three.
Not to get ahead of it but could you just give us any kind of comments on how youre thinking about the growth rate into 'twenty three I know you've had this 415 marker out there for 24.
And I think on previous calls you kind of talked about you know.
Bridging the gap to that.
15.
But you have the ROE penalty, maybe some potential higher financing costs you. Your sales commentary seems pretty strong and you also have new rates at at Georgia power. So just any other considerations to be thinking of.
Yeah, and not to pick at your question, but all we've ever said about 24 is $4 to 430.
I think you were just picking the midpoint.
Our our range has always been $4 to 430, we put that in place some years ago, Dan Yeah, and Nick we're not going to change course here, we always provide our annual guidance on our fourth quarter call. So we'll do that again here in February and put our 23 number out there for the first time.
What we are also likely to do in February as we will narrow that $4 to $4.30 based on what we see at the time you know one of the important factors of and real uncertainties that existed three years ago. When we put that in place was knowing we would have.
Another Georgia power rate case and of course everything else that has transpired in those three years. So once we get past that we'll be positioned to narrow that down.
That's that's helpful and yeah, I was just picking the midpoint, but understood Florida a.
430.
I guess just on the sales growth.
Your kind of commentary on the economy in your current footprint, which was notable and just we've seen some of your peers starting to revise longer term sales load.
Higher just how are you thinking about that is as we prepare for a more of a longer term update in the fourth quarter call.
Yeah, I don't know whether you saw my saying on.
C N D C. This morning on Squawk box.
But it is a consistent refrain and were actually surprised a wee bit.
Our growth so far has been much higher than what we thought.
And it's pretty comprehensive.
A summary, though is kind of a notable I was looking through all of our material.
We are essentially back to pre COVID-19 levels on commercial and industrial sales. Our residential sales number is a little over 5% improved I think that's probably a reflection of a number of things splitting.
But including kind of workforce America's reaction.
To this new hybrid work environment and we're finding.
The other thing Dan mentioned is the.
Our economic development data, which continues to be strong we don't see much of a reduction or a slowing in those numbers.
You know I have a background with the fed and so I always get into the nerdy economic.
Details but.
One of the things that are.
Our head economist here kind of shy of or does it look.
Particular, our industrial segment. So we take our top 10 industrial segments, which represent I think about 80% of our sales for the industrial segment.
And we do look at not only kind of period over period results would still show really positive growth everything looking pretty good. We go to the trouble of go into the first derivative and I would call that a momentum statistic.
That would show that even though we still show really good growth that the amount of growth is moderating and we just need to kind of think about that as we look going forward I know a lot of my peers around the country and the economists and the fed and all of the pundits are talk.
And about potentially a mild recession sometime first second third quarters of 2023.
We see no data for the southeast that indicate that would be here. So when you hear recession data just know that generally speaking it is national broad brush kind of statistic.
South East region is it appears to be by the data we have much more resilient and much less prone to such a downturn.
Hey, it helpful commentary I really appreciate it we will see you soon.
You bet.
Yes.
We have a question from Julien Dumoulin Smith with Bank of America. Please go ahead. Your line is open.
Great.
Yeah.
Hey, Thanks for taking the time I appreciate it good good good to see of Leighton Buzzard jet Hey, listen.
I wanted to ask you a question specific to your I mean, if we saw some headlines in the quarter here about.
Perhaps your eventual retirement here can you talk a little bit about succession planning and just where we stand in that process and it sounds specifically how long are you thinking about staying vis vis the in service of the units here just just to prep the street around your thought process.
Yeah, there's been a lot written about that I'm, feeling like methuselah for Heaven's sakes.
Look.
I am 65, and a half so that's a fact somebody saw fit to read an article about that.
The fact is our southern company's board has made no.
<unk> of that one way or the other there is no timetable for me, leaving I certainly have an interest in progressing the Vogel units that's for sure.
You should know also one of my comments are that reporter I think got misconstrued or.
I don't know he asked me are you looking for a successor and I said look it's every ceo's job first day, they get there to have a succession plan in place that got turned into I'm actively looking for a successor.
Here's the here's the truth of it and you all know this I think.
When you look at our brothers and sisters around the United States.
Southern company has been a terrific place to grow talent, we have several subsidiaries, where we can give people experiential opportunities beyond just growing within a silo of functions within their <unk>.
Experience at the company.
And it is our intention to do that somebody is successful in a certain area, we put them into a place where maybe they don't know as much maybe they're not as comfortable and they got to build new constituents in order to succeed we have a very rigorous process. We have had a rigorous process for 2025 years of growing.
Talent and moving them around.
The latest example, Robyn born who has been treasurer at Southern company is now.
I guess effective November 1st going to become CEO of southern power.
This is just another example of how we move people around that show us that they have the capability to grow into senior senior positions inside the company. So we will continue with that the great News is that there is good talent are.
All over this industry, there's exceptional talent inside southern and I'm very very happy with the bench the Southern Company management Council and beyond.
Excellent.
Thank you for providing that in a clearer clearing the air as you say on the on some of the articles out there.
If I can just a follow up on Nick's last question, a little bit you know.
You all have a track record, especially through Covid are finding offsets and and reductions and just dealing with difficult context, so the extent to which that we're dealing with inflation today, whether that manifest itself in the form of liability management and interest expense or just generally elevated labor costs at.
Vocal and elsewhere, how are you thinking about providing a comprehensive update on that front as well I know that you talked about narrowing 24 here, but can you talk a little bit more specifically about your efforts to manage inflation, then an offset on that front as well.
As with just about anything Julien, it's it's a all of the above approach right. So and it's it always has been for US. So we have managed both in the short term and more importantly in the long term around all of these kind of issues and we'll continue to do that so to a degree that will.
B you know.
Changing the way we operate we are becoming more efficient it will be looking for ways to deploy capital that that does reduce O&M. It will be looking for ways to grow the business more to help offset what might otherwise be headwinds elsewhere, and then importantly, along the way while we're focused on.
All of that will also as we always are be focused on clean safe reliable and importantly, affordable energy as we navigate this with our regulators and strike the right balance there.
Got it alright fair enough it'll be embedded in whatever you guys update us on 24 at the end of the day.
Ticket.
Yes, Sir.
Excellent alright, well good luck and we'll speak to that.
Thank you my friend.
We have a question from Michael Lapidus with Goldman Sachs. Please go ahead. Your line is open.
Hi, Thank you guys for Hey, Tom Thank you and Dan for taking my questions.
First one a number of your peers have.
<unk> built a pretty sizable deferred fuel balances that may take a couple of years to recover just given the spike in power and gas prices just curious whether youre seeing the same thing across your larger subsidiaries and in your conversations with stakeholders.
Thinking about the timeline and recover those differ feel balances.
Yeah, Michael this is Dan so.
We are certainly having discussions with our regulators, we've been very transparent and proactive of making sure that they have.
Understand and appreciate this macro dynamic that has a curve, particularly with natural gas costs and to an extent coal prices as well and so yeah. We like you mentioned, Michael like many peers have accumulated a pretty sizable under recovered balance as of the end of the third quarter in total it's about 2.2 billion.
The vast majority of that is the Georgia power was at about one point to $7 billion.
So with each of our jurisdictions you know the process is a little different some are a little more regular than their cadence some are a little more discretionary.
The plan for that largest balance in Georgia there'll be address it early next year.
And again well.
Very closely with the regulators to make sure that's done in a way that yeah.
It is the least impactful for customers as possible and Michael if I could just add as a as a comment on dogma.
Now as apart from the so-called.
So called organized markets the integrated regulated markets provide us a mechanism to pass through fuel clause in it feel costs. So there is no profit incentive for us in other words, it's always incentive for us to keep prices as low as possible and so we have done that you know.
We've had programs in place that have helped us keep those.
Costello.
This year, we've hedged 34% of our.
Fuel prices gas prices at about $3 and 22% next year or 32% at 473, certainly those are below the spot prices for natural gas right now nobody can predict the future, but certainly those kinds of programs which have been.
Have been put in place with the conjunction of the public service commissions have been awfully helpful to reduce the pressure on that issue.
Got it one last.
No go ahead.
So just in addition to that continuous proactive dialogue with regulators, we've been having similar conversations with the rating agency is making sure that they're keenly aware of us likely having to carry a little incremental debt to see this through but.
All of our subsidiaries, Georgia power in particular, Alabama power, Mississippi power have the financial strength to be able to weather that.
One last comment on how to do it but on a going forward basis once a vogtle three and four go in service.
And the equivalent energy price.
Coming out of that plant is going to be effectively about a buck per million Btu, it's going to be an awfully attractive asset that will run 24, seven and $3 65.
Got it and then a follow up question, a little bit unrelated I mean.
Vogel Capex should step down materially next year.
And then gone in 2024, except for maintenance and.
Dan you made the comment of you know if there's new generation additions coming in the capital plan is kind of in the back end of the plan.
How are you thinking about the potential for incremental capital allocation I'm not necessarily in 2023, because youre still spending on vogel, but kind of in 'twenty four 'twenty five timeframe.
Yeah look it's not unchanged from where we were earlier this year I mean, our capital plan is designed to support our growth rate of 5% to 7% I think we highlighted in the fourth quarter call kind of the history of our planning process and how opportunities.
<unk> emerge the further out in the forecast you get as we roll the forecast for the numbers continue to increase as we get clarity on things as we vet things with regulators as new regulations emerge as new technologies emerge and I think that will continue to happen and then we've got the allocation that we set aside for southern power that's been a little quiet.
Here in recent days because of the uncertainty that existed before or a past I think youll see that continue to ramp up.
We've got a plan today, Michael that doesn't require us to issue any equity to finance it and to the extent, we find more opportunities that are able to earn either a regulated returns or the returns that we require of the projects at southern power, we will adjust our financing plan, but I'm happy to.
Our equity plans onto finance more regulated growth and then please correct me if I misstate. This but I think you guys have done you and your team have done a great job illustrating to the investment community, how we develop the capex estimate.
And I'm I'm being more direct and you were the outer years are always underestimated. When you go through time, we ended up spending more money than we estimate in the outer years, and if I had to estimate that in the current five year plan.
Arent, we arent, we estimating something like 41 billion over five years, and if we kind of adjusted for what May happen.
More reasonable number may be as much as 45.
Yeah, I don't think that's unfair and importantly, the 41, the starting point is what supports our 5% to 7% growth rate and so as more and more opportunities to invest are identified is simply increases the durability of that growth rate either in the short term or over the long term and you should know all of you on the phone should know that.
Some companies put a bunch of plug estimates in there we don't we.
We do sensitivities to indicate.
What may happen with higher Capex, assuming we get appropriate recovery, which we think we would.
But that's the way we are we have a conservative plan.
Got it. Thank you guys much appreciate it.
Thank you.
We have question from Turkish Chopra with Evercore ISI. Please go ahead. Your line is open.
Hey, Doug it's great to have you with us.
Hey, Tom.
Thanks, Thanks for giving me the time, Hey, just one I have one housekeeping question and then just a follow up just in terms of the and forgive me if I missed this and I think you discussed this as part of the last year, but the 5% to 7% long term EPS growth target is that is that a is that still sort of where you are.
<unk> long term earnings growth.
Yeah, we established that once a year.
And we'll come back to you with a new five year plan I guess its in February but yeah.
That's us.
Got it thanks, and then maybe just can you comment on there was some discussion of it just bill increases.
What should we expect here in that.
In the near term excuse me given.
Given the fuel price increases what are what are we looking at over the next few months in terms of.
Customer bill increases and how could you potentially offset some of that.
Yeah, Hey, Doug is we have a policy you followed us for some time have never front running a regulatory process, we're not going to start now.
So that's going to be a question I, let alone for now when we see results then we will be able to speak to this specifically.
Understood. Thank you again.
You bet. Thank you.
We have a question from Angie <unk> with Seaport Global. Please go ahead. Your line is open.
Angie how are you.
Great. Thank you. Thanks for taking my question so just.
A couple of questions about the Vogel for.
So it's kind of an agreement between the co owners as to the in service date and how the companies are showing it I almost feel like.
I think I'm, referring here to other stores it seems like they're showing first quarter 'twenty four and the C O diesel Vogel for.
And I'm just wondering if this is basically what.
The whisper.
That's you know it's it's after that after them to actually make a call on the startup of commercial operations.
Angie it's a wonderful question look.
Our performance to date indicates that we are in the reasonable expectation of achieving our year end twenty-three in service date.
You'll have to ask all wheel for why they may depart from that.
Okay, and then secondly.
Just tracking the I tax for that unit and I remember that they were very lumpy with that unit three so so it's again I mean, it seems like you need a very many of them too.
To start you allowed so again is there any pattern in those I tax that we shouldn't be worried about or again. They are just as lumpy as they were with unit three.
Yeah, there's about 240 or a little above that remaining on unit four AG and yeah, there's not a.
Normal cadence if you will and there's also a lot of things that are tied to particular.
A milestone tests, so hot functional testing as an example, there'll be a lot that either come in as a result of that or after that and that's where we really started focusing on them for unit three and kind of laying out the remaining schedule, but I would not expect any sort of you know.
Linear progression there it will be lumpy will in fact.
Your memory is absolutely spot on it is lumpy and the reason it's lumpy is when we finish systems.
Then we are able to submit the iron tax and recall the problem. We had I guess it was earlier this year was right around the end of the year into January .
Finishing up all of the paper, we think we've put in place controls processes, which will speak to that we should not repeat that problem. So as we finish system completions associated with the big milestones right. So ultimately hot functional test, you'll see a big <unk>.
<unk>, a lumpy look and ramp up of some middle of tax.
Great and just one follow up and I appreciate that you have limited visibility.
The you know the way the election is going to be run for that that's your seat for the commission now.
When I think about the the Prudence review.
And the you know the elections that may happen between now and then.
Many of the commissioners will have been replaced again I know that it depends when they actually has actually happened that yes.
Just just theoretically.
I couldn't even hazard a guess at that it really depends on when they come up when the legislature comes up with this process.
I have no idea.
When that will be or what the outcome will be and therefore, it's hard to answer your question I'm, sorry, but yeah, but based on the current terms Angie there there are only two upfront than.
This year and there were none scheduled for next year and so just again if this gets resolved quickly it will be the two that would participate in a special election, there's another commissioner of reelection in 2024.
Very good okay. That's all I need thank you.
Election, yet.
Yeah.
Our next question is from Paul Fremont with Mizuho. Please go ahead. Your line is open.
Hello, Paul.
Hey, How's it going.
Congratulations on a good quarter.
Thank you appreciate it.
Can you update us on.
The construction work that's left on unit three I think you had indicated you had indicated that you were doing construction.
After you got the one out of three G letter up until fuel load is all of that construction completed or or how many hours of construction or remaining there.
A tiny amount.
And I would almost refer to it as construction at this point.
It's really finishing.
The finest tunings as you can imagine in order to go.
Go critical.
For example, we've loaded the fuel we have to put the top on the reactor vessel and ratchet down the enormous.
Bolt structures that will tighten that top down are we have to finish what they call coding. So this would be areas like walls, they just need to be painted.
It werent required on our safety related basis. It is finally, so in the reactor vessel in order for us to load fuel it had to be pristine cleanliness and actually putting the top on the reactor vessel preserves that condition, we want to finish all of the minute cleaning person.
Seizures that will be necessary for us to run that plant at its stuff like that.
And is this I mean is it days weeks months.
Well, what I would say Paul is the next milestone we're guiding you to is critical.
Its criticality announced January .
So you would finish than the construction between now and then or whatever additional work there is between now and January .
Yes, Sir I I'm not sure I would call that construction, but yeah that's right.
And then can you discuss the secondary steam.
Systems in the plant.
Do we need to wait until after criticality when you go through that testing phase.
To make sure that that system is working.
The way that you want it to work or.
Hi.
Can you address that earlier.
So here's the thing.
There is a prescribed process and it's a great graph that nobody will let me put it out there, but it's a really interesting looking graph that shows a prescribed process of taking the plant up in power and then taking it down for example.
Within I think the first.
Weak or so 10 days, we'll get to 25% power then they take it down and then we'll go to 50 and take it down and then we'll go to 75 and take it down and then 90, and then 100, they do all sorts of trips and bells and whistles, along the way and what they're trying to do is.
What may be a condition that could exist once the plant goes in service to make sure that everything works as it is supposed to.
If you want more details on that we filed the V. C. M. Here recently.
And there's a good bit of background in that V. C. M report that we filed that can give you more here if you want to see it.
Great.
And then last question for me I'll take a shot at what somebody asked there's an earlier question, but do you would you expect to settle.
The general rate case.
Or do you think the parties are too far apart.
Oh, no it's not.
It's whether we settle or not has no bearing on too far apart or at least hasn't in the years past.
You know Paul just go I mean, you've followed us forever it seems like in <unk>.
We have had this process in place since 95 in every three years, we go through this in.
And typically we reach an agreement just before the holidays I would expect that to occur again theres a lot of value. Its almost therapeutic if you will to let everybody's views come out in the open and have a good fair debate.
We've been treated fairly every other time my sense is we'll be treated fairly again.
Great. That's a that's it for me.
Always appreciate you joining us.
And we have a question from Travis Miller with Morningstar. Please go ahead. Your line is open.
Hello, Thanks for taking my question.
Yeah.
The customer growth to the extent that that continues above the forecast what does that mean for mix of capex spending in terms of distribution versus potentially even transmission, but certainly distribution versus generation where does that stand.
Sure.
You know if I remember correctly, Dan again, correct me if I'm wrong in the old days, we spent about 1 billion a year on T N D.
Kind of every year.
I'd argue that may be amped up a little in recent years because of what I would call hardening or resilience expenditures.
You remember hurricane Yuri Hurricane Gee Whiz Winter storm, Yuri that went through Texas one of the things we did in a proactive way was to look at our kind of planning margin system average temperature and we've reduced that temperature to give us more margin on extreme weather.
Those are the kinds of things that we are spending.
Spending more money on T N D. Four I would argue.
As well there is some T N D expenditures that will be intertwined with ultimately our generation location decisions and I think we've been over this a lot with you guys, but if you look at North Georgia, What's the final disposition and when a plant.
<unk>.
Whether we locate more generation in the north or let more generation be located in the south and add the transmission necessary to get that generation to the load center. Those are the kind of decisions that will cover in the next I don't know three to five years.
Okay. That's helpful and then real quick back on the capital allocation.
I know you can't talk about what the board is going to do but wonder general thoughts on the dividend to the extent that you get to that post Vogel four to $4 30, obviously that may suggest.
Significant jump what are your thoughts on that side.
Yeah. Travis this is Dan so we've talked about this in an earlier call. There is if you look in our slide deck slide 21 kind of represents the the uplift from the completion of Vogel from a cash flow perspective, we're really thinking about that uplifts supporting three things.
One is an improvement in our overall financial profile or a particular credit profile.
Thing two is it continues to fund our growth and then thing three is the dividend we have.
Increase the dividend every year for over two decades now going back 75 years, we've never cut the dividend, it's an incredibly important part of our overall value proposition as we get to 'twenty 'twenty four given the improvement in our profile and given a durable growth rate we.
I think the board will certainly have the opportunity to reevaluate the pace of growth.
And perhaps better align the growth in the dividend with growth in earnings.
Okay, that's great I understand.
Thanks, so much.
Thank you.
Okay.
And that concludes today's question and answer session. Sir are there any other closing.
Closing remarks.
No I'm just reminded maybe its age is getting to me that I can remember one time.
I don't know five six years ago, where somebody was pleading with me to have a boring earnings call.
You know the old mantra of regular predictable sustainable starts to reenter our dialogue now as we finish these major milestones on Vogel and we look towards the future.
I wouldn't say this is a boring call at all but it certainly has less volatility in it given the performance that this company has been able to achieve.
Here's hoping for the future, we feel confident and we look forward.
Finishing the year strong and are looking forward to a new year next year. Thank you all for joining us and we appreciate it and see you soon.
Thanks, Shirley <unk> and gentlemen, this concludes the southern company third quarter 2022 earnings call you may now disconnect.
[music].
Yeah.
Uh huh.
[music].
Okay.
[music].