Q4 2022 Southern Co Earnings Call
Okay.
Good afternoon. My name is Scott and I will be your conference operator today at this time I would like to welcome everyone to the Southern company fourth 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 I would now like to turn the call over to Mr. Scott <unk>, Vice President Investor Relations and Treasurer. Please go ahead Sir.
Thank you Scott good afternoon, and welcome to Southern company's year end 2022 earnings call. Joining me today are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company, and Dan Tucker Chief Financial Officer.
In addition, Georgia Power's CEO , Chris Womack, who will be succeeding Thomas President and CEO in the coming months is also joining us.
Let me remind you we'll be making forward looking statements today in addition to providing historical information.
Various important factors could cause actual results to differ materially from those indicated in the forward looking statements, including those discussed in our Form 10-K form 10, Qs and subsequent filings.
In addition, we will present non-GAAP financial information on this call reconciliations to the applicable GAAP measure are included in the financial information. We released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at Investor that Southern company Dot Com.
At this time I'll turn the call over to Tom Fanning.
Thank you Scott good afternoon, and thank you for joining us today.
Southern company had another exceptional year in 2022 as you can see from the materials that we released this morning, we reported strong adjusted earnings per share consistent with the very top of our guidance range. These results were due in no small part to the culmination of the hard work of thousands of people.
Throughout our company to put in day in and day out to provide customers with clean safe reliable and affordable energy.
Our operations team generation fleet and power delivery system worked exceedingly well in 2022, which included meeting an all time peak load of over 41000 megawatts in Jan and navigating well in extreme winter cold of that over the Christmas weekend that pushed electric demand to us.
System peak load of nearly 38000 megawatts of December record.
Our success with these events is a testament to the value of our vertically integrated state regulated business model delivers to our customers and the communities. We are privileged to serve a great example of the benefits which come from our state's long term integrated planning processes is the 26% Winter reserve.
<unk> margin factored into the capacity planning process. This winter reserve margin, which is significantly higher than typical summer reserve margin.
Inherently recognizes that peak demand in the winter occurs during the dark early morning hours when solar resources are diminished and cold temperatures can have unintended adverse effects on generation and fuel supply equipment.
So it's thoughtful planning assumptions, along with robust winter as Asian programs and a continuous focus on resilience investments are top of mind across all of our state regulated utilities.
Let's turn now to an update on vogtle units three and four.
Since our last call the site team at unit three has turned to testing and startup process in support of the units next major milestone initial criticality.
During this process as disclosed in January we identified vibrations associated with certain piping within the passive cooling system, which required additional time to remediate.
The site team cool down the unit and successfully remediated, the vibrations, allowing them to resume the testing, which precedes initial credit county.
During this work we identified a few additional issues to address.
Consistent with our focus on optimal long term performance and getting it right.
We've added some additional time to the unit three scheduled to address these items and to reduce the risks associated with other potential issues emerging.
We now project, placing unit three in service in May or June of 2023.
Turning now to unit four substantial progress continued throughout the last quarter, we successfully completed cold hydro testing in early December electrical production and terminations through year end were sustained at levels supportive of our year end 2002.
'twenty three in service objective.
All required systems necessary to start hot functional testing on unit four have been completed and turned over to the initial test program.
<unk> and system testing activities are steadily increasing and are now critical path and supported the next major milestones for unit four hot functional testing and fuel load we have seen a market improvement in testing results for unit four compared to the unit three process, which reflects the increase.
Focus on first time construction quality and timely documentation.
Even with the improved results somewhat slower than planned testing productivity has consume margin in our schedule.
The sites working schedule continues to reflect a couple of months' of remaining margin for a 2023 in service date.
After careful consideration and given our experience on unit three and the degree of critical work ahead of US. We are further risk adjusting our unit four schedule to reflect a range of the projected in service date.
Between late fourth quarter of 2023, and the end of the first quarter of 2024.
Turning now to cost, Georgia Power's share of the total project capital cost forecast reflects a projected increase of $201 million to fund the extension of unit three and unit four projected in service dates to the end of the second quarter 2023 and to the <unk>.
End of the first quarter 2024, respectively, plus modest increases in the in the projected cost of resources to complete the remaining work and testing on unit four as.
As a result, Georgia power recorded an after tax charge of $150 million during the quarter.
We've included project schedules for the next major milestones for each unit, including initial critical criticality for unit three and the start of hot functional testing for unit four in the materials provided for this call.
Our priority remains bringing vogtle units three and four online to provide Georgia with a reliable carbon free resource for the next 60 to 80 years, we will continue to take the time needed to get it right and we will not sacrifice safety or quality to meet schedule.
Dan I'll turn the call over to you.
Thanks, Tom and good afternoon, everyone as Tom mentioned, we had a we had strong financial results for the year with adjusted earnings of $3 60 per share 19 cents higher than 2021 the.
The primary drivers for the year over year increase are higher revenues associated with retail pricing warmer weather primarily in the second quarter of 2022 customer growth increased usage and investment on our regulated utilities.
These revenue effects were partially offset by higher non fuel O&M expenses and higher interest expenses the.
The increase in non fuel O&M reflects long term commitments to our regulated utilities to reliability and resiliency along with efforts to advance maintenance activities in light of emerging cost pressures.
Additional shares from the mandatory conversion of our equity units in August 22 are also reflected in 2022 EPS results.
A detailed reconciliation of our reported and adjusted results compared to 2021 is included in today's release and earnings package.
Weather adjusted retail.
Excuse me electric sales were up 1.2% for 2022 compared to 2021, almost double the growth rate forecast for 2022 and back above pre pandemic levels. We continued to see robust residential growth with the addition of nearly 50000 residential electric customers and over.
30000 residential gas customers throughout the year.
Residential customer usage also continued to outpace our expectations, reflecting sustained hybrid work practices across our service territories. Additionally, commercial sales for 2020 to beat our forecast by nearly 2%.
Reflecting a reversion to pre pandemic trends as the economy shifts from consuming goods to services.
Industrial sales for 2022 were lower than forecast by one 5% driven by a chemical facility closure and weakening industrial sales momentum during the second half of the year.
With interest rates rising we have seen slowing in construction and housing related sectors, such as lumber stone clay and glass and textiles and.
In the fourth quarter of 2022 eight of our top 10 industrial segments experienced slower sales growth as compared to the prior quarter.
Included in our 2023 guidance is an assumption of retail electric sales growth of zero to 1% and as in prior quarters. We continue to monitor the potential implications of supply chain constraints labor force participation and inflationary pressures on our outlook.
The economic development pipeline in our service territories remains robust 2022 economic development announcements in our southeast service territories saw an increase in expected job creation and capital investment of 135% and 257% respectively. In 2022 is.
Compared to 2021.
The pipeline of potential projects grew significantly compared to recent years with new corporate announcements and expansions representing a broad cross section of industries, including automotive technology E fulfillment and distribution health care and Bioscience. In addition to the traditional factors that have historically.
Orally drawn businesses to our service territory like transportation networks, lower cost of living and business friendly state and local policies. Another emerging trend that continues to drive momentum in both economic development wins and the size of the potential pipeline is the diversified workforce, especially technology.
Workers and the diverse University systems in our territories, which prominently feature several H B C as well.
We're proud to have been on the forefront of helping develop this workforce through our significant investment along with Apple and the propel center in Atlanta.
More and more as other companies strive to have their workforce reflect the diverse global customers. They serve our southeast service territories have become a top choice for relocation or expansion.
We are proud of the significant role that our subsidiaries play in attracting new businesses to our service territories and in 2022 site selection magazine named Alabama Power and Georgia Power Top U S utilities for economic development for the fourth consecutive year and recognize the state of Georgia as the second best.
Business climate in the country.
Strong economic development activity continues to differentiate our southeast service territories from other areas of the country.
Yeah.
Turning now to our expectations for 2023.
Our adjusted earnings guidance range for the year is $3 55 to $3 65 per share.
Expected drivers for 2023 versus 2022 our continued growth in our state regulated subsidiaries, including the contribution related to Vogtle unit three going into service.
Offset by higher parent company interest expense, including financing cost for plant Vogtle units three and four.
Cost in excess of $7.3 billion seemed reasonable by the Georgia, PSC and share dilution, reflecting the full year impact of the mandatory conversion of our equity units in August 2022.
We estimate adjusted earnings of 70 cents per share for the first quarter.
Additionally, we are narrowing our 2024 adjusted guidance range of $4 to $4 30.
Which was established in early 2021.
In order to acknowledge the uncertainty inherent in providing guidance three years in advance. The original 2024 range was wider than our typical annual EPS guidance ranges.
Since this range was introduced in February 2021, our state regulated outcomes have been largely consistent with our assumptions.
Several upside opportunities inherent in the top end of our original range like renewable and storage investment opportunities in both our state regulated electric companies and southern power have been deferred to later years, largely due to adverse market conditions, including more challenging contract I can't.
Requirements and global supply chain constraints.
Financing costs, particularly parent company interest rates are a significant headwind relative to our forecast in early 2021.
Rates on variable and short term debt are significantly higher than expected and as securities and our low cost of debt portfolio mature new issuances no matter the tenor are significantly more expensive.
Compounding these negative parent company interest rate effects or the growth in our state regulated capital plans relative to early 2021 and the increased cost for Georgia Power's share of Vogtle, three and four which has grown by nearly $1.9 billion since early 2021.
Collectively these factors would narrow our $4 to $4.30 range.
Adjusted for 'twenty 'twenty four to $4.
And $4.10, adding the potential for Vogel for to be completed at the end of the first quarter of 'twenty 'twenty, four which would have a negative five cent per share impact solely in 'twenty 'twenty. Four we are providing an adjusted 2024 earnings guidance range of $3.95 to.
$4.10 per share.
We plan to further narrow this range during our fourth quarter 2023 earnings call early next year.
We continue to see our long term adjusted EPS growth rate in the five 5% to 7% range consistent with our updated 2024 adjusted EPS guidance range.
This projected growth is supported by a $43 billion capital plan with 97% of total projected capital deployment over the next five years at our state regulated utilities.
Additionally, our history of constructive regulation strong credit ratings and disciplined O&M spending served to strengthen our outlook.
Our robust capital investment program continues to be driven by significant investment in our state regulated utility businesses. Our total base capital investment plan of approximately $43 billion, which excludes the capital required to complete vogtle units three and four reflects a $2 billion increase in state regulated utility.
Investments relative to our previous five year forecast.
These increases in our forecast are the result of greater visibility into infrastructure required to serve major customer additions and expansions further improve our grid and protect our technology infrastructure as well as investments related to the transformation of our generation fleet.
We have continued to maintain our discipline disciplined approach to capital forecasting within our state regulated utility businesses consistent with past practice, we don't include placeholders and.
And we don't include capital that isn't expected to earn our allowed regulated returns. The result of this approach is that our capital expenditure forecast tend to grow, especially in the later years as our visibility into customer growth increases as regulatory processes unfold as compliance.
<unk> evolved and as our long term system planning is refined we fully expect this trend to continue.
Additionally.
We continue to believe southern power has a significant opportunity to continue growing through investments that facilitate fleet transitions and the growth of clean energy infrastructure across the United States Southern Power's business model has been distinctive since its beginnings in the early two thousands focusing on long term contracts with credit.
Worthy counterparties and a risk adjusted risk adjusted return profile that aligns well with our overall value proposition.
We've allocated up to three and a half a billion dollars over the five year plan with approximately $500 million in 2023 and $750 million annually for the remainder of the forecast period. These allocations of capital are not included in our base capital forecast.
Our financial plan is anchored to our base capital forecast of $43 billion as I have already suggested we believe upside potential exists in our state regulated subsidiary or forecast and our southern power allocation, which if realized would result in total spend of over 46 billion.
We also continue to believe many of the same drivers for additional potential investment over the next five years.
Could translate to investment opportunities beyond 2027, as we continue our journey to achieve net zero greenhouse gas emissions.
We've included a three year financing plan in the appendix to todays slide deck. This plan, which is consistent with our updated capital investment plan.
And the potential capital investment opportunities that we've highlighted continues to assume no equity need over our five year planning horizon.
As always we will maintain our discipline and the flexibility to use all the financing tools at our disposal to drive value for shareholders.
Credit quality and strong investment curtain right strong investment grade credit ratings.
As we complete plant Vogtle units three and four we believe the expected reduction in construction risk and the projected improvement in F. <unk> to debt metrics further for further position us to support our credit quality objectives.
Tom I'll now turn the call back over to you. Thank you Dan.
Southern company strives to deliver superior risk adjusted total shareholder returns and I believe the plan. We've laid out will support that objective our customer and community focused business model, our growing investment in our state regulated utility franchises the priority, we place on credit quality and our App.
<unk> toward achieving net zero greenhouse gas emissions, all contribute to making southern company, our premier sustainable investment a remarkable dividend track record remains a vital component to our value proposition.
We're three quarters of a century, we have paid a quarterly dividend that is equal to or greater than the previous quarter, including sustained dividend increases for more than 20 years and.
In closing I am sure that most of you are well aware of the recent announcement of Chris Womack to succeed me as President and Chief Executive Officer in the coming months I will remain as executive chairman of the board of directors.
In conjunction with this announcement, where a number of other senior leadership changes was highlighted the depth of talent. We've worked hard to develop at southern company I expect each of these leaders will flourish in their new roles further strengthen the company's deep bench and bring a fresh perspective to Egypt.
Our businesses with Chris Womack and his team leading us the future of Southern company is in great hands as we continue to strive to make the communities that we have the privilege to serve better off because we're there and as we continue our relentless pursuit to provide customers with clean.
Safe reliable and affordable energy.
With that I'll turn the call over to Chris Womack for a few brief remarks before we get to Q&A.
Thank you Tom and good afternoon to everyone I cannot be more excited to have the privilege to lead southern company in the months and years ahead.
Is an important time in our industry as the energy landscape continues to evolve and customers' needs continue to change.
Southern company is at the forefront of that evolution and we are building the future of energy it.
It is an honor to lead teams that are dedicated to innovating and delivering world class customer service and reliability customers. While also moving boldly forward in our journey to continuously represent.
Values and improve the communities we serve.
Tom and his predecessors, along with the thousands of team members across the enterprise. Tom mentioned earlier have built a solid foundation for Southern company and we've got a lot of important work ahead of us to continue to build upon their legacy. Thank.
Thank you all again for joining us this afternoon.
Look forward to getting the opportunity to get out and interact more closely with each of you in the investment community during the weeks and months ahead.
Operator, we are now ready to take questions.
Thank you if you'd like to register a question. Please press the one followed by the four on your.
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Yeah.
We do have a question from Shar <unk> with Guggenheim Partners. Please go ahead. Your line is open.
Hello, Shar how are you.
I was glad to help you. Thank you.
Thank you very much appreciate it glad to be here and thank you for taking our questions I just wanted to first congratulate Chris on your new role and Tom on your planned transition and the evolution of your role in the company. So congrats to you both.
Thank you. Thank you.
So I have a few questions here a quick one off the bat I just had a few inbound questions from people to clarify the five to seven base remains the 'twenty 'twenty four midpoint, but now it's the midpoint of $3 95 to 410 is that correct.
Or is there another way to think about the base for that five to seven going forward close to bogo.
Yes, Hey, James as Dan. So look we were very intentional in choosing the words, you know consistent with our adjusted guidance range at those words were really acknowledging of two things.
One is just like we did with the $4 to $4.30 will further narrow this range as we get line of sight on on unit four and have our fourth quarter earnings call next year thing too that it acknowledges is that the five cent impact for Vogel for potentially.
Going into the first quarter of 2024 is a one year effect and so the growth rate will be off of that narrowed range. When we get to 'twenty 'twenty four the other thing is the five reflects a full charge assuming you go in at the end of the quarter and I'm really.
It would be a little disappointed if that's where we end up right now as we stand adding that extra quarter. He got five months of margin on unit four hopefully we can do better than that.
That's that's very clear and that's great. So okay. So it would be a higher base than what some people might have been reading it out but that's good to hear.
Looking at our new capital plan, and then assuming that some or all of the capex beyond the base plan is able to be added.
Could you give us a bit more color on how much of that 3 billion could potentially end up at the regulated utilities versus southern power and then as a follow up in the slides you showed the 11 different categories. There the examples of.
Where that incremental investment could be renewables transmission et cetera in your view, which of these categories are most likely to end up in the plan, what's kind of low hanging fruit. If there is such a thing or just what is most probable and in sort of what years. If we were to be building kind of an upside scenario versus a base scenario.
That we're trying to look at.
Todd.
What would make the most sense to kind of prioritize there.
Yeah. If it was may do you include the graphs you've done in the past about how the Capex shows we have yeah. There you go.
What is that page 21 is what I'm looking at I don't know what you guys see we have a history of always undershooting, especially our outward year forecast.
And on the average I would say that <unk> taken over the five years, we undershoot another $3 billion just round numbers.
So if you look over the entire five year period, and an upside case may include $3 billion of additional franchise related rate base looking.
Capex investments.
You know whether southern power hits, its 3 billion or not remains to be seen about market conditions supply chain constraints and a variety of other things.
We've been very clear in past calls to call out our what I think have been challenging market conditions.
Shorter terms, you know, we like bilateral contracts no fuel risk creditworthy counterparties et cetera.
Contract conditions have gotten tougher.
And we're.
We're very disciplined we generally expect about 150 basis points premium for us to go down the bilateral contract route via southern power as compared to our franchise utilities now whether we are able to duplicate that or not we'll see if they don't show up we won't invest if you want to include more ups.
Syed I would include some portion of that three plus billion dollars for southern power over the five year period, I would also kind of tilt.
Those investments towards the back end.
One last comment I will make we said it in the script, but I think it's important when you look at the additional capex available outside the five year period, I think you really do start picking up some of the Ah <unk>.
Generation transition kind of capital that may be available a.
Recall, we will have a high bias towards.
More gas more renewables, particularly solar in our region.
Dan do you want to add to that.
It looks like I think you've covered it really well the other thing I'd just reinforce James is that you know the the 5% to 7% growth rate is based on our $43 billion capital plan the opportunity to deploy more than that simply strengthens our position in that regard or potentially lengthens our position in that regard.
Card and just going back to what Tom said about the longer term just recall a lot of our coal retirement plans happen at the very end or the year. After our five year plan and that really is where a lot of incremental opportunities also get unlocked I mean for example, a big slug of retirements around 29.
So.
Gotcha, that's extremely helpful and especially the color on upside there.
Very much appreciate it.
Good.
Yeah that helps a lot and the final question for US is in the slides you mentioned that you expect robust customer growth across your service territories.
Well then also of course, only expecting flat to slightly increasing retail electric sales.
<unk> on the detail that you shared in the prepared remarks could you give us just a bit more granularity given that these are our broad rather than just regionally focused on one particular area.
On the on these broad trends, what's driving the divergence there or.
Are you just taking a more conservative approach.
Approach going forward to help us understand more how to look at it.
Yes, it is kind of a conservative approach, but here's the thing we we have in front of us kind of data that supports a couple of different scenarios.
On CNBC. This morning, I talked about the potential for a soft or no landing in other words when you look at growth year over year, we have kind of a negative mixed bag of things going on in industrial there not all negative there are some positives.
But when you look at the momentum statistics that is the first derivative of growth.
They're all negative in other words, even if you grew year over year the growth rate was smaller.
So that would seem to indicate that at least within the industrial sector.
That things are slowing a bit now they have been way better than what they thought we would be but still slowing okay.
On the other hand, what we're seeing out of our economic development statistics increase and job announcements of 130% increase in capital investment a little over.
250%.
That says that economic development projects generally show up in the two to three to perhaps more timeframe.
So what it says is we may see a wee bit of a downturn a slowing in the economy and.
In 2023, but we don't see this saying dipping into recession levels and we see recovery.
Certainly I think the southeast is.
<unk> demonstrated that capability in the past.
Couple more economic data that's important we tend to grow about 1% a year projected for the next I don't know five years.
Everybody is able to get jobs for the most part right now we have historically low unemployment levels. So you add the kind of steady drumbeat of population growth to the southeast as Dan said before a business friendly climate.
I think we can see maybe some slowing in twenty-three, but recovering in 'twenty four.
And then James just connect that back to your previous question look this growth is certainly exceeding our expectations in terms of the economic development activity and that could very well translate to the need to invest more to serve that load that was not anticipated. So we think over the next three to five years that that will.
All begin to be very transparent to the market.
One last point on the it looks like the work environment on employees, you know we call. It hybrid now, but it looks like it's settling down so we're seeing residential higher than what we thought commercial certainly higher than what we thought we will see how that works out in the future, there's probably still some variance there.
Very helpful all around especially in framing potential upside scenarios, there, which it looks like you guys might be very well positioned to to head into depending on how the macro environment works out either way looking forward to having vogel done this year as I'm sure you and everyone else.
Our end and being able to move onto everything you've just been talking about so it looks like great things ahead. Thanks again for taking the questions I appreciate it. Thank you James.
We have a question from Steve Fleishman with Wolfe Research. Please go ahead. Your line is open.
Hey, Steve Thanks for joining us.
Yeah, you bet good afternoon. So.
Just on <unk> and by the way congrats to both Tom and Chris.
Kim and team so.
The.
On the Vogel free.
Could you please elaborate on the few additional issues.
That are adding more time and then also your comment of reducing risk of other issues can we get color on all that.
Yeah sure they were kind of three things there were many other tests and the three things. We identified so you should know that we successfully evaluated a lot of things going up to criticality. So the three though that we point to that cause delays they.
At least the first two on their own weren't big but they required us as we started to heat the plan up and pressurize that we saw the vibrations. There was some conversation about whether we should start the critical task and fix it later and we said no let's do it right. So we brought the plant down we inserted a couple of.
Metal plates to be honest with you it's to some struts that connect to the pipe and fix the vibration and it was pretty straight forward. It just took time to.
To heat up pressurize take heat down Depressurize.
The second thing we saw was a valve that was connected to some pipes that effectively had two drips per minute.
We wanted to eliminate all drips and we identified that there was a a repositioning of our flange.
Associated with this valve that we ultimately are I think we're just about fixed with it today.
But I got a report from Pizza, our president of nuclear and I think that's done today that's completed.
The last issue is not completed but it has to deal with flow through the.
Reactor coolant pumps and we're just now.
Making sure that we know what the issue is it could be a physical issue it could be a calibration issue in fact, the flow may be good, but we need to recalibrate the measurements around it. So we're all about kind of looking at that today.
Yeah.
Okay, and then in terms of the the comment about doing these to reduce the risk of other issues is that.
Is that.
You're saying there that kind of by doing these things do you think the chance of other things coming up.
At this point is going to be lower.
Something after you started up or.
Alright, well I would think the opposite yeah. Okay.
Yes, Steve I would think so I mean, that's where we go in to fix the vibration on the pipe we saw theres others that we said yes.
Let's not push it lets fix it you know all of that takes time, it's this fray.
Phrase we use but we really do act on it is to get it right, we'd rather have this thing get into criticality.
Once you go nuclear and go critical things become much tougher so anything we know about let's deal with it now and you should know that anything we find now we go over to unit foreign check that for example, and we think the issue on pipe vibrations is spoken for now on unit four we won't see that.
So anyway that that really is the answer where we're trying to get as much as we can once you get go critical it's a much more challenging environment than it is before you go critical just trying to get everything we can see right now.
Okay, and I guess is the fact that you found these things kind of a concern that youre going to find more or is it really more the opposite that.
You know you found these things this is just part of.
Big plant, starting up in and hopefully theres less of a risk from here.
Yeah, but that is why we test right I mean, you should view the power Ascension. Once you go critical as a series of tests that involve a whole variety of different conditions of the plant taking it up bringing it down throwing a emergency stops and there are all kinds of things the purpose of the.
Of the.
Voyage it will the test voyage is to find problems.
And now in fact, we have more time to allow the schedule calls for I guess on the original schedule something like two months of testing the prescribed startup and it's two months and there's roughly a month.
Of slack time to fix things. Okay. We now have I think another month that we've added into our projection into the second quarter.
But for sure Steve Okay fine yeah.
Yep.
Okay.
Ah.
Okay I think that's a that's it for me appreciate it.
Thank you.
Our next question is from David Arcaro with Morgan Stanley . Please go ahead. Your line is open.
Hey, David how are you.
Hey, good morning, great. Thanks, Thanks for taking my question.
And extend my.
Graduations as well.
I was just wondering a follow up on that question is NRC approval has that been needed for any of the remediation work on these couple of issues that you found at unit three.
You know we've been in constant contact with the NRC.
And we did have.
I think with connection of the vibration.
Two license amendments, but we got those in a matter of days this was not a protracted process.
I say I think that.
We continue to work hand in glove with those guys. You know they were also aware of the valve leak and Theyre happy I think with the process that we're following there you should understand that the.
Working relationship with all of the external parties, whether it's the NRC or whether it's the state Commission or.
Now D O a anybody we all sit in the same meetings, we all see the same stuff, we have full and complete transparency in everything we do on that site.
That makes sense understood and are.
Are these issues that are that at this point now you could potentially avoid for unit four bring learnings from the startup process on unit three.
And potentially make unit for a smoother such that it's not a kind of a one for one delay here equals a delay later.
Amen brother, that's exactly what we're trying to do.
And in fact, the process I think it's been noted by many have shown that unit four is going a lot smoother than unit three just because of the learnings of unit three I think the process. We went through that in unit three D at times with somewhat painful, but I think it was certainly instructive.
If you May remember as we started went into H F. T for unit three we were turning over systems like the day before we went to H F. T. For example, all systems necessary to undertake H F. T have been completed the long pole in the Tan on H F. T. At unit four is our I T P. Our integrated test.
Lan.
Yeah Gotcha Gotcha.
And then a separate topic, but the decline in natural gas prices is a nice tailwind for customer bills. I was wondering when would customers could you just remind us when they might see lower prices flow through into rates and how does that interact this year with your plans for the deferred fuel collections.
Hey, David This is Dan so.
Certainly lower prices are going to benefit customers in Georgia power in particular, who has the largest unrecovered balances ended the year at about $2 $1 billion they'll file.
At the end of February .
For those rates, so I, certainly don't want to front run that process, but if to the extent forecast continued to look the way they do today or further come down.
The impact on customer bills will be greatly mitigated the our other electric jurisdictions have already initially addressed the under recovery that was happening and so these lower prices are simply going to accelerate that recovery.
Okay, Great. That's helpful. Thanks, so much.
You're welcome.
Thanks for joining us.
Hey, Thanks, Thanks, Tom appreciate it.
I think Dan. This is in your view house, maybe just and I apologize if I missed this but.
Can you give us your sort of your CFO to debt or F. A photo that as of year end 2022 and where that is tracking versus the euro you targeted.
Our credit metrics and then when in the in the in the in your planning Horizon do you expect to get to your targeted credit metrics.
Yeah.
Thanks for the question and happy to share that and as you know all the agencies calculate those metrics a slightly different way, but I think there's there's certainly a lot of focus on Moody's and S&P. So I'll just I'll hit on those in particular.
Moody's we were about 12% for 2022.
And S&P about 15% and as you'd expect.
Those were pretty significantly impacted by the under recover fuel dynamics, particularly the Moody's metric in the way that they calculate that.
Portion of it is the debt and a portion of it for US is also the impact that <unk>.
Under recovering that fuel had on our tax appetite and our ability to monetize tax benefits. When you combine those factors overall, it's really about a 400 basis point impact to the Moody's metrics in 2022 as we look ahead and we've talked about this a lot in the past.
Vogel certainly on its own has a significant impact on improving the overall financial profile of the company as we begin to recover our investment on that in the future as we get out to 'twenty 'twenty four once it's in service our metrics are closer to 17, 18%, which or will.
[noise] above our targets and provide us that kind of buffer against adversity that we'd prefer to have in our profile.
Got it that's Super helpful. Then so just to be clear like you.
It would be outside of the few balance.
You'd be close to like 16% on Moody's basis as at the end of 2022, if you exclude the.
The few balance that's on the balance sheet.
That's right and as I give you that 17% to 18% projection in the future that includes an assumption that we might still have an undercover bounce that we continue to collect but that has certainly been worked down and vogel has kind of overlaid that to improve the overall profile.
Got it got it thanks, again and just one.
Hopefully quick one in 'twenty two 'twenty three EPS guidance range can you just remind us like what is your assumption for earnings from the unit three.
So it's about four cents or so that it contributes in 2023 relative to 2022 so that's essentially the assumption.
You know a little more than half of the year in service.
And then there's that's offset slightly by the fact that there are some of the rate base that won't actually earn its full return until unit. Four is also in service.
Got it thanks, so much and congratulations Chris and Tom.
I appreciate the time today.
Turkish always glad to have you with us.
Our next question is from N cheese tourism ski with Seaport Global. Please go ahead. Your line is open.
Hey, Angie how are you.
Good good.
So.
Can we talk about management succession.
<unk>.
Really glad to see the updates and then congratulations to you and Chris but I'm just wondering how that.
The Christmas appointments reconciles with the.
The AG policy that southern used to have at least.
One and then two with them.
We had some negative headlines around Alabama power.
A change in CEO and I'm just.
Basically you're asking if there's any link.
With management changes at that subsidiary and the.
Media headlines.
Yeah sure.
The 65 thing is up it's kind of a policy, it's not a rule oil and gas.
The board and I had lots of discussions about staying on beyond 65, one of my personal interest has been to help see vogel through and.
You know I'm still young physically in young at heart, I guess and when we kind of cross that threshold are we looked at people like Womack, who is I guess your what a year younger than me and you.
Now if you've been around Chris at all you would know that he's still acts like a 25 year old.
So.
It was very easy to see him continue in the role and he has fire in his belly and he's done a great job wherever he's been most notably at Georgia power.
Successfully working with our constituents on the three year.
On the three year triennial rate case that we do so it was easy for us to kind of say look.
65 is just a number so long as we're able to contribute in a robust way that's great and.
That's how we did that.
There really wasn't any connection with.
Mark Crosswhite to be honest with you he had.
To go into all of that but.
He he had some issues he wanted to deal with it.
It was reasonably clear that he was in a contender it as a successor here and I think he decided to.
Retire that was kind of his choice at the end of the day.
Okay.
One follow up on Chris So.
So we should expect that Chris is going to stay in this and the kinds Bob for the next couple of years.
He crosses that 65 year old threshold.
Well I'll go ahead, Chris was asked directly he he's committed to 70.
Okay.
Okay.
Onto southern Power's, though.
Hear you comment that I see obviously the.
Sure.
And then growth Capex that that subsidiary, but is it I mean.
Are you trying to conserve.
Financing is that the constraint I mean there'll be see here issues with you know profitability of additional contract based renewables and some constraints about the equipment availability, but I'm just wondering if that is.
If you were just trying to plan.
<unk> spending for southern power within the capital structure that you currently have Oh, no Andrea has nothing to do with that it really is two things.
So Dan is a conservative soul.
And he likes to build his plan without considering upside so.
As we've done for years the way before Dan got here, we don't put in place holders, we think about them and think about what effect. They could have further we don't add anything from southern power and you should think about contribution from southern power is upside to the base case, it really isn't a constraint of capital structure our balance sheet.
Okay.
Thank you.
Yes, ma'am thank you.
Well, we have a question from Nick Campanella with Credit Suisse. Please go ahead. Your line is open.
Hey, Nick everyone, Hey, congrats to all management changes.
Thanks for taking the question as well.
You bet.
I'll hop functional for unit four you have this nice slide here slide eight.
It looks like end of March to.
Call. It late June on an H F T just going back to the kind of the conservatism comments like where do you kind of see yourselves tracking towards now.
With the system turnover is in the line of sight.
The site working plan has H F T in March.
We know that things can happen between now and then but that's what it shows.
Okay, and then can you just update us on the timeline for the Prudency review just what the latest kind of updates to the CODI.
It's fuel load on unit four Chris do you want to say anything more.
We're scheduled to ship in a prudent solid fuel load of four so.
Yeah, that's that's the schedule and that's the path, we'll take in NAFTA agreement or arrangement, we have with the Georgia Public Service Commission.
Okay.
So mid summer here alright, thank you so much.
Well, we have a question from Paul Fremont with Ladenburg. Please go ahead. Your line is open.
Hello, Paul always glad to have you with us.
Thank you so much.
Going back to.
Going back to unit three.
The flow through on the reactor cooler coolant pumps is is that a valve issue as well or is that something else.
We're still kind of running it down it could be.
It could be a calibration issue it could just be the way we measure the flow going through.
So where we're.
Trying to guess what it is at this point is really not practical theyre doing all the work necessary to get to the bottom of that.
Okay.
And the valve issue that you talked about with the drips, that's that's completely resolved.
Thanks, So yeah, I talked to Pete Santa Gosh, 11, 30 today.
And he thought it was taken care of.
We'll see.
And then how many <unk> approvals do you think you need to move forward and actually do hot functional testing.
Zero we're good.
Okay, because I saw it on a on unit three where there were a certain number of <unk> that you thought were nuclear related where you didn't feel comfortable doing the hot functional testing without having those in hand.
That I think you're remembering fuel load there were an awfully good shape and if you look at where we are on four as compared to three as in relation to H F T.
We are light years better.
I mean, we're ready to go all we got to do is finish the required tests before we you know get the heat going and run the plant.
That really is the critical path at this point.
And then last question for me.
If you were to do the additional capex beyond the base does that also not require equity or does equity come with that.
Based on our current projections.
Still not project any equity needs and that's where when I talked about having that cushion in our credit metrics that that plays a big part of it.
Okay, great. That's it for me. Thank you so much.
Thank you. Thank you Paul.
Oh.
And we have a question from Anthony Croda with Mizuho. Please go ahead. Your line is open.
Anthony how are you not bad Tom how are you doing.
Fantastic My friend.
Congrats to all and I just have one quick follow up from <unk> question on the credit side of the World just with the units going in service do you think the credit agencies lower the downgrade threshold because of the I guess reduce business risk.
Yeah look Anthony I'd never want to speak for the agencies I would tell you from my own observations.
Companies that look like us that aren't currently building nuclear units many of them have lower thresholds. So I think there certainly are a strong argument for that to potentially take place.
I won't speak for them, but they should.
[laughter].
Well. Thanks, so much that's all I had everything else has been answered.
Thanks My friend.
And that will conclude today's question and answer session. Sir are there any closing remarks.
Yeah.
Really appreciate you guys joining us exciting year 2023 is going to be an exciting year.
God I said, we have our annual meeting where I turnover, our president and CEO I guess I've already turned over present, but C. E O two Chris wouldn't it be great Chris to have unit three under our belt by then.
You guys are Gonna Love Womack.
Funny story I tell everybody when I first got this job I've always been friends of his butt admired his wisdom intelligence. His work ethic is can do attitude in the very first thing I did when I got the job was move his office from down the Hall right next to my and I can tell you that Chris has.
It's been a thought leader and a partner of mine throughout my tenure he'll be ready to go day, one to carry this company forward and when you look at people like Kim Greene, and Stan Connally, and Jim Carr, and all the and Jeff peoples and all the other people that are in these positions I think its an awfully strong team that's the envy of our industry.
An embarrassment of riches in some respects and I think southern especially post Vogel is going to be a little bit like a rocket ship, if I could say that we're going to be doing great.
So thank you all it's been a pleasure knowing you all in and working with you and we'll see you soon.
Thank you.
Thank you, Sir ladies and gentlemen that concludes the southern company fourth quarter 2022 earnings call you may now disconnect.
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