Q3 2023 The Southern Co Earnings Call
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As a reminder, this conference is being recorded November 2nd 20 twenty-three.
I would now like to turn the conference call over to Mr. Scott Gammill, Vice President Investor Relations and Treasurer. Please go ahead Sir.
Thank you Dana good afternoon, and welcome to Southern company's third quarter 2023 earnings call. Joining me today are Chris Womack, 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-Q 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 Dot Southern company Dot Com.
At this time I'll turn the call over to Chris.
Thank you Scott good afternoon, and thank you for joining us this afternoon.
Our premier state regulated electric and gas utilities, and southern power continued to perform well during the third quarter.
Plant Vogtle unit three has continued to operate at 100% reactive power since being declared in service July 31.
And we expect to deliver on our adjusted financial targets for 2023.
Before Dan provides an overview of our financial results I'd like to provide an update on several announcements since our last call.
First we continued to see economic growth across our southeast service territories. We are excited about the important role our utilities play and attracted new jobs and investments to our states and communities and are proud of the recent recognition for those efforts as Alabama power and Georgia power.
<unk> will each named a top utility for economic development by site selection magazine.
With Georgia, Power's recognition, representing the 25th consecutive year for this honor.
Last Friday, Georgia power filed an update to its integrated resource plan.
Economic development in Georgia has accelerated over the past couple of years.
<unk> Creek contributing to extraordinary projected electricity usage growth, which is significantly larger than historic levels.
Trick transportation manufacturing and its supporting supplier base have been major contributors to the states success.
Along with new data centers to support increased computing power needs and the growing digital economy.
With this 2023 RFP update.
Georgia power is proposing additional investments into George's energy future to provide economical energy solutions that should benefit our customers and communities for generations to come.
Building upon the plan approved in Georgia, Power's 2022, RFP, the 2023 RFP update.
To continue the utilization of a diversified approach to help ensure resilience reliability and flexibility on behalf of customers and Georgia power has requested that the Georgia Public Service Commission.
<unk> this update by the end of April 2024.
In late September Southern power announced the acquisition of the 150 megawatt South Cheyenne solar facility in Wyoming, and the 200 megawatt Miller's branch solar facility in Texas commercial operation of the facilities is expected in 2024.
And 2025, respectively.
These projects represent southern power was 29, and 30 solar facilities, which are the newest additions to our portfolio of 5500 megawatts of carbon free generating capacity.
Consistent with the project in southern Power's existing portfolio.
These new projects include long term contracts and Counterparties with strong credit support.
Additionally, Alabama powers Barry unit eight was successfully placed in service yesterday on schedule and on budget.
720 megawatt combined cycle unit is expected to be one of the most efficient natural gas plants in the country consistent with our proposed resource plan in Georgia Power's 2023, RFP update we believe we are well positioned to continue applying our expertise.
<unk>, an experienced and construct a new natural gas and renewable generation units to serve our regions growing needs.
Last week, we announced a memorandum of understanding between southern company in the U S. General services administration to develop carbon free electricity solutions for federal facilities across our southeast service territory there.
The agreement documents are intent to collaborate on development of a roadmap that when executed will lead to federal agencies by more carbon free electricity in the region.
We view this exciting partnership as another important contribution towards southern company's goal of reaching net zero by 2050.
And finally last Wednesday, we issued our annual sustainability summary, highlighting the great progress that we've made as we continue to advance clean energy.
Lead through innovation invest in our people and serve and elevate the communities that we have the privilege to serve we have worked with our states customer groups communities regulators policymakers and other stakeholders to develop strategic solutions to deliver clean safe reliable and.
Affordable energy to our to serve our growing economies, Dan I'll not turn the call over to you for a financial update.
Thanks, Chris and good afternoon, everyone for the third quarter of 2023, our adjusted earnings were $1 42 per share 12 cents higher than our estimate of 11 11 cents higher than last year.
The primary drivers of our performance compared to last year were warmer than normal weather conditions changes in rates and pricing and lower income taxes, and O&M expenses somewhat offset by higher depreciation and amortization.
For the nine months ended September 32023, our adjusted earnings per share were $3.01 compared to adjusted earnings per share of $3 35 sets for the same period in 2022.
A detailed reconciliation of our reported and adjusted results as compared to 2022 is included in today's release and earnings package.
For the nine months ended September 32023, adjusted earnings per share or 34 cents below the same period, a year ago with the extremely mild weather conditions, we experienced in the south east during the first six months of 2023, representing a major factor in how this year has developed.
While weather conditions continue to present to present risk to our fourth quarter results. We project to achieve our full year adjusted earnings near the middle of our guidance range of $3 55.
The $3 65 per share.
Our adjusted estimate for the fourth quarter is 59 per share, which implies an estimated full year result of $3.60 on an adjusted basis.
Turning now to electricity sales and the economy year to date 2023 weather normal retail electricity sales were approximately half a percent lower than sales levels for the first nine months of 2022.
Year to date, we have added approximately 35000 electric customers and 19000 gas customers trends, which continue to outpace pre pandemic levels.
Strong commercial usage was offset by a return to office dynamic in residential sales as the relationship between these two customer groups appears to have largely reached pre pandemic status.
Lower industrial sales continued to be driven by weakness in the chemical paper and housing related sectors.
More broadly our service territories are in a period of industrial transition, particularly as it pertains to manufacturing historically significant industries, such as paper and chemicals are making way for the manufacturing of solar panels batteries airplanes electric automobiles.
As Krishnan, Chris mentioned earlier during 2023, we have continued to see an extraordinary level of economic development activity within our service territories.
While we will provide formal updates to our outlook during our fourth quarter earnings call. In February we did want to highlight the magnitude of potential change we are seeing electricity sales growth.
Recall, our previous forecast assumed annual electricity sales growth of zero percent to 1%.
Factoring in the power needs of these new highly data centric businesses and manufacturing facilities electricity sales are likely to have an annual growth rate closer to a mid to high single digit range over the next five years.
While there's likely to be significant incremental capital investment required to serve this level of economic development activity, we expect both existing and new customers to recognize economic benefits from this growth Chris.
Chris I'll now turn the call back over to you. Thank.
Thank you Dan.
Before taking your questions I'd first like to provide a brief update on our progress at Vogtle units three and four.
Since successfully achieving commercial operation at the end of July unit, three has performed well delivering nearly two and a half million megawatt hours, a reliable carbon free energy to the citizens of Georgia.
On unit four following fuel alone enduring startup and pre operational testing, we discovered a motor fault.
And one of the four reactor coolant pumps, necessitating a full replacement of the pump with one from our spare parts inventory, we have successfully cleared the path in which the existing reactor coolant pump will be removed and expect to begin that activity in the coming days.
Many pre operational activities continue continue along a parallel path with the pump replacement, including coatings and containment and preparation of the turbine for power Ascension testing <unk>.
After a successful installation of the spare pumps, we will recommence with startup and pre operational testing with a projected in service date during the first quarter of 2024.
Also in late August as part of the Vogtle, three and four prudent process.
Georgia power filed an application with the Georgia Public service Commission to adjust rates to include reasonable and prudent Bogo unit three and four cost.
Related to this application the Georgia Public Service Commission public interest advocacy staff filed a stipulated agreement among Georgia power and several other intervenors, which is intended to constructively resolve all issues regarding reasonableness prudence and cost recovery for the remaining vote.
<unk>, three and four cost not already in base rates.
The Georgia Public Service Commission is expected to vote on this matter on December 19.
Again, thank you all for joining us this afternoon and for your interest in Southern company 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 four on your telephone Youll hear three Tom prompted acknowledged to request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three once again to register for a question. Please press star one.
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Our first question is coming from the line of Carly Davenport with Goldman Sachs. Please go ahead.
Hey, good afternoon, I, just had a call it take how.
How are you. Thanks for taking the questions maybe just to start to pick up on your comments on vocal I guess first just any expectations at this point in terms of the actual process of replacing the reactor coolant pump on you'd expect to get that wrapped in and kind of talk a little bit about maybe what gives you confidence still in.
<unk> 2024 timeline and any factors that you're watching that could accelerate or decelerate that timeline.
Again, thanks for your questions.
We look at the pumps at unit three or four pumps are running as designed.
And as we've we've seen this from sand man in China. So we've seen this experience in terms of replacement. So we think we have a good path.
To replace in the park and so we just feel good about the process that we've identified that is in place for removal and then replacing the spare parts.
So we feel.
I'm very confident about the process and where we are with the pump replacement process at this time.
Great. Thank you for that and then maybe just shifting to sort of some of the capital opportunities that that Daniel alluded to to to facilitate this load growth that you're expecting to see across your territory I guess in the context of the interest rate environment. How are you manage how are you thinking about managing financing.
Capex required to support that growth.
And how you'd expect to balance between debt and equity going forward.
Yes, Carla it's a great question and look just order of magnitude will provide spa.
Specific guidance in February, but I think as we sit here today on the very front end of this this ERP update process, we do see pretty substantial potential increases and potentially we're talking billions of dollars, where our current five year <unk>.
<unk> for capital is 43 billion.
We easily see a plan that translate to something north of 45 billion and it's really a question of how much higher than 45 billion once we get to February.
Kind of lay that out and I say all of that continuing to be conservative about including any owned renewables, we absolutely across all of our electric service territory is expect to own renewables over the forecast horizon, but we're going to wait until there's better line of sight on those individual projects to include those so.
Getting to your question in terms of financing.
We've been very clear about our credit objectives, and I think our profile is positioned to be differentiated and it's our objective over the long term to preserve that differentiated profile and so that will mean the potential for maybe turning on our equity plans.
We're fortunate to have one of the largest if not the largest drips and the industry. We can generate between 350 and $400 million a year just through those and then you know we will always keep on the shelf and at the market program just.
To have flexibility. So we will absolutely do what we need to do to preserve the credit profile in terms of the balance of how that's financed.
It's still a fraction of any incremental capital that translates to equity again, I mentioned billions of capital and hundreds of millions of potential equity through the drip, but I think that will be sufficient to maintain where we want to be.
Great. Thanks for that and if I could just sneak one follow up on that point, Dan do you have any are there any targets that you have on the level of parent debt that you'd like to hold going forward.
I think where we sit today karli just kind of on an unadjusted basis. If you will so not trying to factor in equity credit or content for any particular securities were a little south just.
Of 30% overall I think as the business grows we don't really intend to grow that percentage. So the absolute quantum of debt may increase over time, but the proportion of parent debt to the rest of our debt will remain about the same I think.
Great I appreciate that color. Thank you.
You bet.
Our next question is coming from the line of sharp <unk> with Guggenheim Partners. Please go ahead.
Hey, Chris Hey, Dan.
Sure sure.
Just a quick follow up from the prior question.
The opportunity set is pretty immaterial, Daniel obviously, highlighting it could be in the billions I guess, how do we think about that opportunity set in relations to your 5% to seven so is this a scenario where it's accretive to growth that could be accretive to growth or is this sort of an extended runway scenario.
Yes look sorry, it's a great question, it's the right question, but you know.
Chris and I have been out speaking to the investment community for months well in advance of this filing with the Georgia Commission coming together.
And acknowledging that you know whether it's owned renewables, whether it's the kind of economic development growth that we've been in activity, we've been seeing potential for more capital has been lingering out there, but what we both been very clear about is it's not our objective to raise the growth rate as a result of that what this.
If opportunity presents itself as as an opportunity to strengthen the profile of the growth rate to potentially sustain it longer term and again the important governor on all of this is really two factors. One we're focused on the long term here, we're not trying to have some temporarily.
Higher growth rate in the short term.
And more importantly, number two customer affordability, making sure that we maintain a profile from a customer perspective that preserves the constructive regulatory environments. We're fortunate to have the other great benefit of everything that we're seeing in the fundamentals that Chris and I are so excited about is this level of <unk>.
Sales growth that in and of itself will provide an opportunity to mitigate the affordability equation and sorry, one thing I'd add I mean, you know us very well and you know our process I mean, we will kind of give you that 'twenty four guidance in February of next year. So now we are looking at the headwind the tailwind is kind of where we are.
In terms of the cards that we have and what's in front of us and we will update and give you that guidance in 'twenty four but I'd tell you I mean on the echo.
NII development front, there are just a lot of exciting opportunities, we've got headwinds of interest rates.
Well, we look forward to giving you that update.
On our call in 'twenty four and February.
Just Chris Thanks for bringing that up a little bit just on just I guess on the parent level maturities. It's it's somewhat sizable over the next few years. So maybe can you just provide a little bit of the interest rate sensitivities and I guess, how to manage those pressures, especially as we're thinking about 'twenty four and I think your prior guided too.
Right around that $3 95 to $4 15 range. So how do you manage that if you have a sensitivity there you can provide.
Yeah. It looks are.
Just like we did this year, we're going to.
Kind of be thoughtful creative somewhat aggressive in terms of how we manage that you saw us do the convert earlier this year that really mitigated the interest impact will do everything kind of at our disposal to execute in a way that keeps rates as low as possible I think what.
Everyone is likely stepping back in the industry and saying is look we all knew interest rates were higher in this sense of higher for longer as we sit here today, it's probably the longer piece that we all.
Thought was perhaps not as long as what we're seeing as we sit here, but I think it's all consistent and for us kind of mitigated by this tremendous windfall of economic development activity we have.
In terms of sensitivities look if you think about a kind of a 50 basis point sensitivity around interest rates as we move forward I think with every incremental year. Its basically another an incremental penny of potential EPS plus or minus for that 50 basis points of interest rate sensitivity and we are not interest rate fall.
Casters, we're just basically using.
So kind of public forecasts that are out there in terms of our planning.
Perfect that was all I had I appreciate it thanks for the color and see you in about a week. Thanks guys yeah. Thanks.
Sure.
Our next question is coming from the line of David Arcaro with Morgan Stanley. Please go ahead.
Hey, David Hey, Hey, good afternoon. Thanks for taking my question, maybe starting on the load growth side of things first.
When do you think you'll start to see that coming through in the quarter. I guess you know the actual weather normal sales were down over the last 12 months kind of a similar.
Experience. So when do you think that inflection kind of comes to start to point the underlying.
Electric load growth getting towards that upper single digit level.
No.
As you as we lay out the plan and what the needs are probably in the 26 timeframe I think as you will see some of this play out could be as latest 25.
I mean as plants began they've got to be constructed they've got to go online. So so.
So yes, we look at late 'twenty early 'twenty six timeframe I think before you will see this kind of show up in those increased sales.
When you think when you hear us talk about economic development activity and announcements Dave typically that's that is 345 years from announcement time for facilities to get built to get staff to get trained and operating at a capacity that's meaningful to the outlet.
Yeah got it. Thanks, that's helpful color and context, there and then I was just wondering if you could maybe elaborate a little bit on the pump issue.
Unit four does this look are there any indications that it could be a design issue with the pumps as this happened at other AP 1000.
Units or does this look like it could just be a one off here.
I think it's a little premature to say.
Once we get it out I mean, we will get it back to the manufacturer to to see actually what happened and we will learn from that.
But right now our focus is on removal of the pump and then replacing it with a spare and then moving toward the process of putting a unit in service.
But yes, I mean, we'll take a hard look at what happened to the pump.
We'll repair it.
And move forward.
Okay perfect. Thanks, so much.
Okay. Thank you.
Our next question is coming from the line of Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good afternoon. Thank you guys for the time.
Julian <unk> always a pleasure.
Indeed, likewise, Chris look, let's let's talk about this upside capex just a little bit further here. If you don't mind I keep I keep I keep bothering you on this here, let's talk about first Alabama.
The extent is that gonna be ripe for <unk> and just also how do you think about the ownership angle there.
Do you think going forward to six gigs I think that's over six years not trivial there as well when you were talking about billions of upside was that inclusive of that Alabama opportunity or is that upside to the upside if you want to use that service.
Our.
It's upside to the upside Julien so again.
I mentioned this earlier, where we're going to continue to be conservative on owned renewables that we absolutely have an expectation that will become part of the mix, we're not going to forecast. It until we have better line of sight on individual projects and in Alabama, those will largely be tied to individual customer stories.
When it comes to this economic development activity.
I think kind of the tip of the spear sitting here today is what's happening in Georgia, Theres a lot of momentum across the rest of our electric service territory for opportunities like this.
Got it excellent and just to clarify that Alabama that would be so you said that there are more directly negotiated here with customers that would be presumably entirely and ownership opportunity and then just to clarify <unk> question, a little bit further the <unk> to debt piece of this.
Youre thinking about targeting like a flat level here, even pro forma for the drip, it's not like you're leaning into the balance sheet by only turning on the drip is that inclusive of that incremental capital Youll still hit a fairly flat.
Level, if you will.
Yeah. So on the first part Julien in terms of the mix of ownership and this is going to be true for all of our electric service territories it'll be a mix, we expect to own a meaningful amount, but there is likely to be third party ppas in the mix here just like there has historically so.
That's the reason, we're not including anything in forecast, we don't want to be presumptuous as to exactly what that mix is we just know our we have an expectation it will be meaningful.
On the I'm sorry, what was the second question again Julien.
You know when they are supposed to carla's question on you said something about.
Sort of re engaging on a drip pier one hundreds of millions of equity.
Think about that ratio of equity versus Capex are you thinking that you can keep the metrics relatively flat with that are you kind of expecting it to us.
You will some of the balance sheet capacity.
Yeah, I would call it flat Julian so it's flat over the long term our credit quality as a buffer against the diversity that we have no desire to consume nor do we have nor are we position, where we've got a kind of over <unk> incremental growth. It is a flat long term objectives.
Excellent alright, guys I'll leave it there best of luck I see you got it right.
Thank you.
Our next question is coming from the line of Derrick cash Chopra with Evercore ISI. Please go ahead.
Andrew Yes.
Hey, Dan.
Good afternoon, thanks for giving your time.
Just a I don't want to jump the gun on 24 here, but.
Just wanted to sort of last year.
You are clearly sort of if you guys were articulating headwinds from rates.
And I think of the 24 numbers of.
Subsequently brought down.
Do you think about sort of 24 year again, I just qualitatively, obviously, there's headwinds from rates.
They keep going higher, but then you're showing a stronger load forecast four respectively. So there are puts and takes how would you kind of articulate where 24 is shaking right now where sinter expectations at the beginning of the year.
Let me start by saying I think as we as I said earlier I mean.
That is the things you've mentioned that as part of the process. We're in the middle of now that will lead us to February when we give you our 24 guidance, but assessing those tail. The tailwind that we're really excited about from economic development activities.
To the headwinds of interest rates mean that will all go into the calculus to the process of us.
Coming forth in February with our guidance for.
24.
But I think it's just a tad bit premature.
You've seen us.
In terms of how we do this.
But we just we don't give you any kind of indication of guidance at this point in time, we will do that in February of 24, Yeah, and I guess, it's just a matter of discipline for US. This is you could go back to every third quarter transcript script ever and you're going to hear the same answer but I think it's fair to say, where we are Chris and I are really excited about are the R V.
<unk> proposition that would stack up against anybody else's right now.
Okay I tried at least.
It was a good try.
Just maybe then just shifting back to the discussion to the Capex upside.
How much so obviously billions of dollars what do you think of customer Bill impacts I guess, where I'm going with this is there is a pretty sizeable.
Load growth forecast that you were suggesting mid to mid to high single digits, what percentage of the Capex you would think would go towards that.
I won't be satisfied by the slowed forecast worse as you know increasing rates.
If you could if you could talk to that a bit.
Sure look at it there's a lot of moving parts here as you can imagine and I don't want to get ahead of the regulatory process and things will be evaluated in terms of the ultimate resource plan, that's decided on but stepping back at a really high level.
Everything that we see from a load growth perspective relative to the resources needed to serve this growing peak load and that's key right you invest to make sure you can meet the peak loads, but the customers that you're adding aren't just using electricity at the peak and it just so happens the custom.
<unk> that we're adding are expected to use electricity oftentimes 24, seven and so that kind of profile, we will provide more than sufficient revenue at the rate structures that exist today.
Then as needed to pay for that capital that is where the economic benefits for other customers have the opportunity to really help with this affordability equation.
That makes a lot of sense. Thank you again I appreciate the time.
Thank you.
Our next question is coming from the line of Andrew Weisel with Scotia Bank. Please go ahead.
Andrew Hey, everybody good afternoon I'm doing.
Good.
Great.
Okay. So first just a quick one third quarter was obviously well ahead of the estimate I know part of that is weather, but you're still pointing to the midpoint of the full year range, rather than something higher forgive me if I missed it but what are the offsets relative to your outlook three months ago.
So we didn't really update the year end three months ago again, just as that same discipline, we only address year end on our third quarter call and so it is the first time, we're really refining it it's really about the first half of the year, Yes, we had a better than expected third quarter.
But the headwinds of weather in the first half were pretty substantial and that's why we are 34 cents below last year on a year to date basis and so that's the biggest driver of kind of the middle of guidance expectation for the end of the year now I say all that Andrew I mean again, we we put out quarterly estimates all the.
Time and.
You know kind of challenge you to go back and find a time, where we didnt exceed that so that should help with where expectations are.
Yes definitely okay got it. So you are back on track now I guess I can say.
Next question is on the Georgia, ERP I know it's off cycle you know the typical cadence would have been to wait till 2025, how receptive are the regulators to this I assume you've had conversations with the key intervenors.
Is there any any reluctance to breaking that three year pattern and as a follow up is there any thought to postponing. Some plant retirements I know you talk about what youre going to add and maybe signed contracts for existing assets, but any thoughts of postponing some of your retirement.
Let me take a shot at a couple of things and first of all we never get ahead of our regulators secondly, I'd say as we were going through the 'twenty two RFP process.
We did socialize and bring forward to the commission.
Activity that we saw occurring that there was a likelihood that there would need to be some update filing in.
In between the three year cycle. So this is not necessarily a surprise.
Did mention that this would in fact be forthcoming.
But yes, so we will go through the process.
Hopefully we will get into so we will get a decision sometime by.
Bye.
April of 'twenty four with this update RFP and what was the second part of your question.
Potential to postpone plant retirements.
As you as you look at this knee that is there that there is the likelihood that we would need some traditional units a little longer.
Meaning I think as we look at units that may have been scheduled to retire 28.
We may look to take them into the Thirty's.
That is a possibility as we look to respond to this growing demand for for our customers and while that's an assumption in this ERP update I think that will be a decision to be made in a future ERP ERP proceeding in terms of those existing cogan.
Okay, and just to clarify that you're requesting a decision in April does that mean, the capex update in February will not reflect anything related to this that will wait until February of 2025.
We'll do our best to assess where we are there are there may be some.
Some degree of uncertainty, but I think we'll be able to reflect a good bit of it in the scheduling order has not been established.
But we expect a similar process to the traditional integrated resource planning process and so that would align with a decision sometime in April timeframe of 24.
That's great I appreciate all the details.
Great. Thank you very much for your question.
Our next question is coming from the line of Jeremy Tonet with J P. Morgan. Please go ahead.
Jeremy.
Hi, good afternoon.
For those of us out of state.
Hoping you could provide some instate perspective, with regards to Georgia and elections and the latest on what's happening there with regards to litigation and potential for these elections.
What are the next steps forward here when could these materialize just any thoughts on that and any implications that could mean for southern down the road.
Yeah, Theres a lot of activity around redistricting in lines from congressional seats.
But in terms of the issue in Georgia regarding the public Service Commission. The Roes case that matter is still pending before the 11th Circuit Court of Appeals and there's not been a decision there. So the other matters that may go before the Georgia legislature for for redistricting.
That those processes does not include.
Matters consumed and the Roes case, so we are still waiting for a decision from the 11th circuit on that matter.
Got it I mean would you expect those two elections to be held in 'twenty four or just can't really tell too much at this point.
I think you answered your question.
We can't really tell at this time.
Fair enough fair enough.
And then.
Switching gears here, you know natural gas clearly a key component to to the energy mix as you talked about earlier, just wondering it's not as easy to build a natural gas pipeline as it was at points in the past to supply into the state and just wondering where the Nat gas that you see incremental supply coming from Mr. N V.
P. As this other sources or just how do you see that dynamic at this point.
And.
A couple of things I mean, there are different lines and different processes that were in the middle of in terms of find trying to expand pipeline capacity.
And so we are working with <unk>.
Existing companies, one expanding on existing infrastructure where possible.
But also working to find ways to in fact increased pipeline capacity and pipelines themselves all across our territory. So that's all I can speak to about that at this time, yes. We know there are challenges there, but we think it is essential and important to support us being able to survive.
Customers with the reliability, they demand and they need and so we are continuing to pursue.
Various host of alternatives and options to.
To make sure we have the supply that we need.
Got it fair enough and one last one if I could just.
Be it related to vocal or otherwise just wondering how could green hydrogen play into the IOP in Europe do you have any plans to test that out as a power plant fuel.
And we have I mean, we've done one of the largest blend and we're looking at other opportunities as you know we participated in the hydrogen hub in the Midwest, we were not successful with the hydrogen hub that we participated in here in the southeast, but we continue to have conversations and discussions with a number.
Number of customers.
I think we all are interested in finding ways to get the price of hydrogen down and thus also create.
The infrastructure to move hydrogen around.
So, yes, I mean, we're still.
All arrows in the quiver, we're looking at every option for renewable resources to meet the needs of our customers and hydrogen is a is a big consideration.
For us.
Got it that's helpful I'll leave it there thanks.
Our next question is coming from the line of Angie stores in ski with Seaport. Please go ahead.
Angie.
How are you thanks for the great question.
Yes.
So just two things one.
That's my one southern power.
It was kind of surprised to see the announcement about yes. Our approach on acquisitions, you had struggled to find any projects that actually makes sense.
From a economics perspective now.
Not meaningfully high interest rate environment, and now you're going after these projects. So I'm just wondering if.
Theres something specific about this these two projects or is it just that you're managing your SSR all using some of the the.
So a benefit and on the back of the IRI.
Yes, great question, Angie because it had been a while before it was since we've done anything at southern power and really what changed was the IRR. So we had stopped doing solar projects kind of.
Middle of the last decade, we did a lot through 2015 through 2016, and then it didn't do any sense because we didn't like the profile of investment tax credits for solar projects. The PTC is something that matches much better our regular predictable sustainable earnings profile and.
That the IRA kind of unlocked a lot of development activity on the solar front and so the opportunity set was really big and we narrowed it down to a couple of projects here recently that fit the kind of criteria we look for.
Again, just to reiterate for everyone. What we do at southern power, It's long term contracts credit worthy Counterparties. It's returns that are better overall from an equity perspective that our regulated business and it fits our overall profile, it's a southern power's balance sheet finance straight at it.
Of itself as a triple B plus company and it's an important if you think about the the bulk of southern power the rest of it the natural gas fleet. When you think about what's happening with capacity needs in the southeast.
That business will become something of a crown jewel in the southeast because it is one of the best providers of capacity reliable just basketball capacity in the southeast. So it's a business that's important to us and these were two great opportunities to grow it.
But again, it's not.
Again, when I, when I think about Vogel and the improvement in cash flow on the backhaul side.
<unk> of those units you should be probably at the very last hour.
One of the very large utilities that needs to manage <unk>.
Using those tax credits. So this is not.
This is not a credit play Angie net zero percent.
Okay, and then secondly at different nodes.
So that there was another.
Management change at Alabama.
The power yesterday again, if I'm not mistaken that's the third one this year just caught my attention if there is.
Again, if it's just the coincidence that coincidence that we had these three management changes in Alabama power or there is something more to it.
No Angie I wouldn't read anything more into that I mean, you've had a number of individuals' leadership, there who have put 40 years of service and that has chosen to retire.
And then the opportunity to bring in and bring in some new talent I think that that helps the overall team but.
We as you know we pay a lot of attention to succession planning and we do a lot of work internally in terms of growing our teams, but I think we're also wise enough to know when we can also go invest in some talent from the outside to bring into our team. It makes all routing better.
So I wouldn't read anything more to it than just the reality of a couple of individual decided to retire and as moving some people around.
Good Yeah, if you didn't hear that 40 years.
40 years.
Very good thanks.
Thank you.
And our last question for today is coming from the line of Travis Miller with Morningstar. Please go ahead.
That's right.
Hello.
You answered almost all my questions on a couple of financing and even used a word I was going to use creative but.
I'll throw out there non traditional anything we've seen several other utilities, who needed to raise financing some non traditional means divestitures minority interest sale.
Is that something in the toolbox for you or can we just roll that type of stuff out.
Yeah look there's always a toolbox I would argue our toolboxes lot smaller than it used to be when it comes to alternative sources of capital. We did a lot of work over the last several years to kind of hone this portfolio of companies to something that.
It really fits in that we feel really good about so are there some small opportunities, yes, but do we have any for sale signs sitting out there right now.
Okay makes sense and then a quick follow up the dividend what do you think the board is looking for.
To get offset eight cents or.
Growth rates of four or five 6%.
What are your thoughts around that.
Yeah, I think it's primarily just working our way down to a sustainable payout ratio right. So if you think about where our guidance sits here in 2023, our payout is going to be something like 77% for 2023, that's not a sustainable payout ratio for growing company now that's largely a function of the ROE as we've been.
Turning at Georgia power during construction of Vogtle, three and four as that rolls off.
That payout ratio will begin to come down, but we just need to get it somewhere comfortably.
And that's something that probably starts with a six in order to start evaluating a higher growth rate.
Okay, Yeah that makes sense. Thanks, so much.
You bet. Thank you.
And that will conclude today's question and answer session. Sir are there any closing remarks.
Again, thank you everyone for joining us today, we really appreciate your interest in Southern company and we look forward to seeing many of you are very very soon in the meantime, you have questions. Please give us a call but again, thank you very much for joining us today.
Thank you, Sir ladies and gentlemen, this concludes the southern company third quarter 2023 earnings call you may now disconnect.