Q3 2024 The Southern Co Earnings Call

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Good afternoon. My name is Julien, and I'll be your conference operator for today. At this time, I would like to welcome everyone to Southern Company's third quarter 2024 earnings call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press star 2 to remove yourself from the queue. If anyone should require operator assistance, please press star 0 on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce Mr. Greg McLeod. Thank you. You may begin.

Thank you, Julien. Good afternoon, and welcome to Southern Company's third quarter 2024 earnings call. Joining me today are Chris Womack, Chairman, President, and Chief Executive Officer of Southern Company, and Dan Tucker, Chief Financial Officer.

Let me remind you that we will make forward-looking statements today in addition to providing historical information.

In addition, we will present non-GAAP financial information on this call.

Reconciliations to the applicable gap 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.southerncompany.com. I'll now turn the call over to Chris Womack.

Thank you, Greg. Good afternoon, and thank you for joining us today.

Chris Womack: Our entire company, including our premier state regulated electric gas and utilities, continued to perform well during the third quarter.

especially as our dedicated employees across Southern Company came together as one team in response to Hurricane Helene.

The resolve and the professionalism of our employees has never been more evident than was demonstrated through the recent storm restoration efforts in Georgia.

Before Dan provides an overview of our financial results, I'd like to share our story from this unprecedented weather event.

Hurricane Helene was a storm of historic magnitude.

Its aftermath was met with an extraordinary response from our dedicated team across Southern Company, our mutual assistance partners, state and local first responders, and emergency management agencies and governmental officials all across Georgia.

Persistent rain, extreme flooding, and heavy winds resulted in what can only be characterized as devastation to many of the communities we serve.

with the destruction stretching hundreds of miles impacting the eastern two-thirds of the entire state.

Chris Womack: ultimately.

The damage caused by Hurricane Helene was the most destructive in Georgia Power's 140-year history, exceeding the damage caused by the three largest storms to impact Georgia Power's service territory combined.

Chris Womack: Helene entered southern Georgia as a category 1 hurricane and resulted in 53 out of the 159 counties in the state being declared major disaster areas by the Federal Energy Emergency Management Agency.

with considerable damage to transmission infrastructure, nearly 12,000 damaged utility poles, and some 1,500 miles of downed wires, the equivalent of the distance between Atlanta and Phoenix, Arizona.

Our customers experienced over 1.5 million outages in the wake of the storm.

with the support of resources from across North America.

a workforce of well over 20,000 worked around the clock to safely reconnect customers through extremely difficult conditions.

Commensurate with the devastation seen in our communities, much of our utility infrastructure was damaged beyond mere repair.

and significant portions of our system in the affected regions required a complete rebuild.

Chris Womack: Thanks to the contributions of our utility industry partners.

and especially thanks to the unwavering commitment of our own hard-working, dedicated crews.

many of whom lived in these same communities and some of whom endured destruction to their own homes, the restoration and rebuilding efforts were 95% complete within 8 days, with power restored to over a half a million customers within the first 48 hours.

We are incredibly proud of our team's response and internally grateful to be a part of an industry that works so well together in times of need.

Many of the communities we are privileged to serve across eastern Georgia have a long road ahead to recovery.

Georgia Power, Atlantic Gas Light, Southern Company are contributing to organizations to aid these communities. And Georgia Power has taken additional steps to provide support and resources to our customers in Georgia.

Chris Womack: and our business model.

Chris Womack: Customers are at the center of everything we do.

Chris Womack: And our commitment to the communities and customers we serve has never been more important than in times like these.

I am extremely proud of our team's exceptional efforts to clearly demonstrate that we are a citizen wherever we serve each and every day. Dan, I'll now turn the call over to you for a financial update.

Dan: Thanks Chris and good afternoon everyone. Before I walk through the third quarter financial results, I'd like to briefly address the cost associated with the recovery efforts Chris just described related to Hurricane Helene.

The initial estimated cost for this historic storm-related restoration and rebuild is approximately $1.1 billion.

The unprecedented destruction associated with this weather event, combined with impacts of inflation on the cost of contract labor, supplies, food, fuel, and lodging, contribute to the overall cost.

Dan: Our estimate is subject to change over the next several months as estimates are replaced with bills from our mutual assistance partners, as we complete the final cleanup of damaged equipment, and as we work to ensure the impacted areas are restored to meet our standards for long-term reliability.

That is not to suggest that our estimate is likely to materially change, but rather to acknowledge that it takes time to fully capture the ultimate cost of such an extensive endeavor.

Turning now to our financial results, for the third quarter of 2024, our adjusted earnings were $1.43 per share, one cent higher than the third quarter of 2023.

The primary drivers of our performance for the quarter compared to last year were continued investment in our state regulated utilities and customer growth.

This was mostly offset by higher interest, depreciation, and other operating expenses.

And for the nine months ended September 30th, 2024, our adjusted earnings per share were $3.56 compared with adjusted earnings per share of $3.01 for the same period in 2023.

Dan: One of the largest drivers in our year-to-date results compared with the prior year is weather-related impacts from an extremely mild first half of 2023, contrasted with the weather effects we've experienced thus far in 2024.

A complete reconciliation of the year-over-year earnings is included in the materials we released this morning.

Our adjusted EPS estimate for the fourth quarter is $0.49 per share, which, combined with our year-to-date performance, would represent full-year adjusted earnings of $4.05 per share.

After excluding a 0.4% negative impact of lost sales that resulted from the damage caused by Hurricane Helene, weather normalized total retail electricity sales were essentially flat compared with the third quarter of 2023.

Dan: The broad strength of the economy in the Southeast was exhibited in the quarter by strong electricity sales in the chemical, pipeline, and transportation segments, as well as data center power usage, which continued its positive trend and was up 10% year-over-year.

Dan: And, while weather normalized residential electricity usage per customer was slightly down in the quarter, we saw strong residential customer additions of 12,000 in our electric businesses and 7,000 new customers in our natural gas distribution businesses.

Thank you.

Dan: The economic development activity across our electric service territories remains robust and our pipeline continues to grow at an historic pace.

Forty-two companies either established or expanded operation in our service territory in the third quarter, generating 5,000-plus potential new jobs and representing capital investments totaling approximately $2.6 billion.

Alabama Power's economic activity this quarter represented its strongest quarter in several years led by announcements and metals, renewable energy, and the chemical segment.

The combined pipeline for new industrial and other large-load commercial customers across our three-state electric utility footprint continues to grow.

The upcoming quarterly large-load economic development report to be filed with the Georgia Public Service Commission

Dan: is expected to reflect that Georgia Power's potential load additions in its economic development pipeline have grown to over 36 gigawatts by the mid-2030s, with 8 gigawatts committed.

Dan: Chris, I'll turn the call back over to you. Thanks, Dan.

Chris Womack: We have delivered exceptional operational and solid financial results through the first three quarters of the year.

Chris Womack: and we are well positioned to finish the year strong.

Chris Womack: Our team's resilience in the face of a historic storm highlights our dedication to the customers and the communities we are privileged to serve, and I am so extremely grateful and proud to be a part of their team.

It is certainly an exciting time for our great company and for this industry.

with supportive states and constructive regulation along with our portfolio of state regulated electric and gas utilities.

We are well positioned for the opportunity presented by this extraordinary energy demand growth our industry is projecting in the coming years.

as we work to help our states grow.

and partner with the communities we are privileged to serve.

Chris Womack: Our disciplined approach, combined with the orderly planning and regulatory processes across our utility service territories, should support mutual benefits for all of our stakeholders, including our existing customers.

Chris Womack: Let me conclude by saying...

I am very excited about our future.

Operator, we are now ready to take questions.

Speaker Change: Thank you.

Thank you. We will now be conducting a question and answer session. Once again, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. One moment while we poll for questions.

Our first question comes from Carly Davenport, Golden Insects.

and Chris Womack. Thank you. Thank you.

Carly Davenport: Hey, good afternoon. Thanks for taking the questions. Maybe just to start on the storm cost side, I appreciate the color on the $1.1 billion estimate at this point. Will all of that be deferred and can you just talk through the process and the timing for filing for recovery of those costs in Georgia?

Yeah, and per usual, Carly, we don't want to get too far ahead of any upcoming regulatory processes or make assumptions about how the Commission will ultimately decide to deal with it. Just, I think it's good to acknowledge historically, they've been very constructive and the recovery has been timely and balanced kind of the needs of the company and the customers.

In terms of where we sit today, yes, all the costs have been deferred. There is still work to do, not unlike...

Just turning estimates into more firm numbers. Again, don't expect material changes there. We will also go through a process.

determining, particularly based on the nature of this rebuild that occurred, not just restoration, how much of these dollars are ultimately capital dollars, essentially new assets, as opposed to the cost to support the crews.

You know, costs to simply rehang wires, those would typically look more like O&M, but those would be deferred and potentially recovered in a different manner than the capital costs.

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Got it. Okay, that's super helpful. Thank you. And then maybe just pivoting to the load growth side, appreciate the updates there on the pipeline in Georgia. Could you just talk a little bit about, you know, how that pipeline has

and also the commitments in the context of the upcoming IRP filing in Georgia, how are you thinking about the potential magnitude or mix of that filing just based on what you've seen so far in terms of how that large load pipeline has developed and how that pipeline has converted to actual customer commitments?

Thank you.

Yeah, that's a great question, Carly. So, and again, without getting too far ahead of any processes or actual filings, you know, the reason...

Momentum continue in the size of the pipeline, but we have to your point seen continued commitments.

Speaker Change: within that pipeline. So as we sit here today, again, we have 8,000 megawatts that have been committed by the mid-2030 time frame, whereas at the time of our filing last fall with the Public Service Commission, that number was more like 3,600 megawatts.

Speaker Change: And so we're continuing to see that kind of progress.

Carly, one thing I would add, and we talk about it a lot as we go through kind of our narrative about how this...

process works, and I talk a lot about our orderly processes. And I think...

As you look forward to this next large load filing, and then as the company prepares for the integrated resource planning process.

I think that demonstrates that process that's in place.

Speaker Change: to clearly demonstrate what's real.

And then how we price this, and just how we work our way through bringing these projects online, but just working through an orderly process, because there's a lot of activity out there in the marketplace, but I think we owe it to...

Speaker Change: Our regulatory bodies, but also to all of our states to make sure we're being very diligent as we work through this process to bring these projects online.

Speaker Change: Got it. Very clear. Thanks so much for the time.

Thank you. Our next question comes from Shar Pourreza of Guggenheim Partners.

Hey guys, it's me, Chris, again.

Speaker Change: Hey Chris, I just wanted to maybe start with Southern Power for a sec, sort of this kind of push for resource adequacy being so front and center in almost every jurisdiction, I mean Southern Power is predominantly contracted, but I have to imagine kind of the off takers want to stick with the assets.

Are you seeing kind of any opportunities around restriking the contracts and extending the tenors? Are you seeing opportunities as contracts roll off? And how do we think about pricing kind of in this environment and what it could also mean for Southern Power's growth? Thanks.

Chris Womack: Yeah, let me start, Shar, and just level set on Southern Power. So, you know, we've always taken an approach with Southern Power to...

have it, have a risk profile that looks and feels like the regulated business.

long-term contracts, credit-worthy counterparties. We don't take fuel risk. And so that portfolio, and in particular if we focus in on the natural gas generation portfolio...

Chris Womack: is largely covered, I mean 90% plus covered through the end of this decade.

Speaker Change: And so, it's not until then that you begin to have...

contracts that are up for renewal. Now obviously we would you know have an opportunity to renew or extend to your point well before the end of the decade and so in that context as we look at the current contract rates

relative to what capacity values appear to be out in that time frame.

Speaker Change: They've essentially doubled relative to what they were. But again, this is a long-term opportunity to kind of improve the returns within Southern power. So yes, there is great interest in that capacity.

Speaker Change: beyond the existing assets.

Speaker Change: We're also getting...

pinged, if you will, continuously by customers hoping to be able to add new assets, whether those be natural gas or renewables, whether that's in the Southeast or in other markets, particularly where we have

renewables and it's the same kind of potential customer mix that we have today. We serve a lot of load serving entities.

Speaker Change: So, investor-owned utilities, municipalities, co-ops.

But we also, particularly in our renewable portfolio, serve a lot of large commercial and industrial customers.

directly through contract. They may be in structured markets, but it's ultimately a contract with an individual customer. So we're exploring those too, but maintaining that same discipline I described on the front end. Long-term contract tracks, credit-worthy counterparties, no fuel risk.

Speaker Change: Got it, but that discipline doesn't really curtail or put a ceiling on how big you you expect Southern Power to get because the opportunities are pretty sizable.

Yeah, I think that's right, Char, and just, you know, historically, and I think even going forward, you know,

We are a regulated utility holding company.

and we have this incredibly attractive complementary wholesale generation business that we've never wanted to get outsized relative to our retail business, our retail electric business or in gas business.

That said, the regulated utility business is growing so fast right now, I have no concerns about Southern Power's growth rate outstripping that.

We talk about being disciplined and just know that in the midst of all this opportunity, we will remain very disciplined as we move through this period.

Got it. Okay, perfect. And then just lastly just on

Follow-up to Carly's, just fine-tuning, just, Dan, do you have any sense, you've got to...

estimated cost number there you said 1.1 it could change but do you have any sense on how much of that could be capital versus O&M and then how do we sort of think about the timing of that recovery going into a GRC

as we're thinking about bill impact and customer affordability, right? So there's a bunch of things happening at once and this is a big GRC coming up, so how do we sort of think about the risks there?

Yeah, on your first point, Char, it's just too early to say. I think intuitively,

Speaker Change: We believe it will likely skew at least a little more capital than historically, but in terms of what that actually looks like, it's hard to say. And the reason that...

of, you know, the Capitol versus this other piece, but just what else is being considered at the time, and I think the most important thing to look back on is the constructive approach that the Commission has taken historically.

I appreciate it, guys. Thanks so much. See you in about a week.

Speaker Change: Thank you. Thank you, Char.

Thank you. Our next question comes from Ross Fowler, Bank of America.

Speaker Change: Hi, Ross.

Ross Fowler: Good morning, Chris. Good morning, Dan. So, maybe following on the Shar's question, he asked most of it, but, Dan, maybe not commenting on whatever happens in the future, but in the past...

sort of as you've worked through storm recovery processes in Georgia. This isn't the first hurricane you've ever had.

What is the typical sort of cash recovery lag? Can you remind us what that looks like and then does that...

create an opportunity for securitization? Can that be done in the state? And then, you know, how do you sort of finance the gap between kind of the expenses that have gone out, hung on the balance sheet, versus the actual cash recovery that's going forward?

Yeah, look, I think the PSC has in their hands every tool at their disposal to overlay, kind of a flexible approach to this.

Speaker Change: Without being too precise about history, I think it's fair to say it has depended on the magnitude of the storm and the circumstances at the time, but the recovery periods have been from a couple of years to as many as six years.

Speaker Change: depending on how big the balance was and what else was kind of being factored into rates at the same time.

Speaker Change: Okay, perfect, thank you. You bet.

Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Nick Campanella, Barclays.

Speaker Change: Hey, Nick.

Hey, good afternoon everyone. Thanks for taking my question. Hope everyone's doing well.

So, hey, I just wanted to kind of get your perspective, you know, 36 gigawatts is a big number. You already have eight committed to your point.

It just kind of seems like there's pressure higher on your load outlook every quarter here.

And, you know, you have seen some peers in the space starting to kind of revise numbers.

Speaker Change: specifically kind of ETF.

I'm just kind of curious, is there a tipping point for you into where you would essentially need to kind of reevaluate, you know, the five to seven? Is there a point where, you know, the plan can sustain a rate-based growth figure or even net of kind of, you know, financing drag that would kind of put you above that five to seven range? Thanks.

Sure, so I'll start Nick with what I've said historically on the growth rate.

I would not expect anything to change in the near term, everything we're describing. So let's go back to the 36.

gigawatts that we're referring to. That's by the mid 2030s.

That's not a 2024, 2025, 2026 kind of phenomenon, that's long-term. It certainly gets feathered in through the end of the decade and then will into the next decade. But every opportunity that exists here...

and nature.

And what I've said historically is, to the extent this momentum continues, and the momentum is less about the pipeline as it is the commitments and the risk-adjusted outlook on sales and the capital that it takes to serve that load. If that continues,

Long term, in the latter half of our outlook, there may be an opportunity to re-evaluate

where the growth is starting from. As we sit here today I don't think five to seven as a rate of growth.

Speaker Change: It changes. But again...

We will evaluate it when we get there. You mentioned a lot of the moving parts here. We shared earlier this year that our long-term sales growth, or at least the back half of the plan, was close to 6%.

Speaker Change: With everything we're seeing when we update our plan in February for you all, I won't be surprised if that's a higher number.

When we get to February, we'll unveil our capital plan.

We've already talked along the way and disclosed in our queue several things that are incremental to our capital plan earlier this year handful of southern power projects

A little bit of refinement around the Georgia Power IRP process and the IRP update around storage and the cost to plant Yates and its certification.

We've seen the details around the Southern Natural Pipeline opportunity that we own 50% of.

Those things on their own that are known.

Speaker Change: are roughly $3 billion of incremental capital relative to our $48 billion plan.

It won't surprise me, given what we're seeing, that there are several billion dollars on top of that reflected in our plan in February.

Speaker Change: So, we're taking a long-term view here.

There's lots of opportunity. We're being very disciplined about how we approach this.

That's great, Dan. I appreciate all that context. Thank you for that and you know, I know the I know the IRP filing is coming

You know, you guys have been kind of...

leaders in the nuclear space. Can you just kind of talk about how this fits into the company's wider generation outlook, even if it's at kind of the consolidated level? Are there relicensing opportunities? Are there upright opportunities to consider?

Speaker Change: And, you know, there was discussion about a potential multistate framework and if that's something that you are part of, maybe you could talk about this a little bit. Thanks.

Yeah, look, there's obviously a lot in that question as well. Let's just put it in the context of the IRP. Just not going to get ahead of any regulatory processes, but let's talk about what that process looks like, right? It's, at the end of the day, it's

various moving parts environmental rules, the cost of natural gas over time, the cost of capital over time, and those scenarios are solving for the most economic, reliable way to serve customers in the long term.

Speaker Change: Is it?

Speaker Change: possible that one of those scenario model runs spits out a nuclear upper rate or a new nuclear unit as the solution in the model? Sure it might.

Does that mean that's a recommendation? No. Does that mean that's a path we've embarked on? No. Does that mean it's an option that is worth preserving and considering down the road? Of course it is. But there's a lot that's got to take place before we get to that point.

Speaker Change: And that's...

I think what you hear a lot of us in the industry talking about, new nuclear is super important for this country.

Speaker Change: But in order to get to the right place, there's got to be better risk mitigation that exists today.

Speaker Change: That's got to come from changes with the federal government.

that could come from some of these conversations with these large technology companies. We're talking to as many of these companies as anyone. I'd argue we're having conversations with the majority of them, not just around nuclear, just around different ways to solve for this load equation.

So it's a part of a broader conversation, but our discipline around this, and I'll tell you as my discipline at CFO, we're not going down that path until the risk is mitigated, but Chris, what would you add? Yeah, no, Dan, I think you're exactly right. I mean, there's a lot of work that needs to be done at the federal level.

If this country is to embrace more nuclear, I mean and Dan said it, I mean Southern Company has engaged with

Speaker Change: Over a majority, maybe all of the hyperscalers regarding Nucleus solutions, but other solutions to respond to their data center needs.

Speaker Change: There are just so many risks that have to be dealt with. I mean, the risk is simply just too great.

I'm hopeful and we are trying to encourage to make sure that the government leans in in a manner that helps mitigate the risk to shareholders and existing customers.

Speaker Change: You know, we're not going to move forward until we see a better light of sight in terms of those risks being mitigated. But between the federal government...

and some of the hyperscalers, and we hope we can see, hope there's progress and advancement on responding to what needs to be done, but also helping mitigate some of this risk.

Speaker Change: I appreciate your guys' perspective on it and looking forward to seeing you in Florida. Thanks.

Great, thank you very much.

Speaker Change: Thank you. Bye. Bye.

Thank you.

Speaker Change: Blah blah blah.

Our next question comes from Jameson Ward, Jeffries.

Speaker Change: Hey guys, it's Julien here, actually. Thanks again for taking the question. Maybe to follow up on Nick's last one here, if you can, just elaborate a little bit further here on the Nuclear side. I mean, clearly a lot of focus. You guys obviously led the vanguard here at the outset of the last build-out cycle.

Can you speak a little bit more, you talk about preserving the option over time, that doesn't sound like it's a, you know, kind of a nearer term, you know, development that you could, you know, press release.

Speaker Change: in the next year with the hyperscaler percent. I just want to make sure I'm hearing this right. This is more preliminary than maybe what we've seen from some of your peers out there.

I don't want to put words in your mouth, I'm just sort of curious to tease out of you how far down that rabbit hole you are, considering the expertise that you guys bring to the table on the subject, whether in SMR or anything like that.

Speaker Change: No, I think you said it up front. I mean, we were the Vanguard. We've had this experience.

Speaker Change: and we recognize and fully understand the risks that are there and so as we spoke earlier.

We think before we can move down this path, we've got to find solutions to mitigate the risk to our shareholders, but also to our customers with nuclear. And so, that's kind of where we are. I mean, we'll go through the RIP processes that...

Speaker Change: and as we go through those models and all the different scenarios in terms of what may come forward.

But from a nuclear perspective, the risk issues are just so real, and we know what they are, that we've got to find some way to mitigate those issues before we see the opportunity, we see the reality of moving forward.

For more information visit www.FEMA.gov

Okay, thank you. Our next question comes from Jeremy Tonnet, JP Morgan.

Hey Jeremy. Hi, good afternoon. Hey, happy Halloween. If I could just continue on the nuclear side a bit here and I know you touched on up rates there a bit but just wanted to see at a high level if you could share.

Any thoughts at all as far as what the opportunity set, the range of, I guess, up-rate potential there? And I know that there's a lot of variables in play, economics and all the other factors that you've listed, but just wondering, you know, directionally, if you could give us any thoughts there.

Yeah, look, again, Jeremy, I hate to keep saying this, but we're not going to get ahead of any regulatory processes. I'll give you just a little color there.

Speaker Change: You know, so broadly across the enterprise, so this is not Georgia Power specific but Georgia Power and Alabama Power and remember we have co-owners on all of these things. We do have six legacy units.

that there are opportunities for up-rates. Historically, many of those up-rates have not been economic.

the benefits that are inherent in the IRA and some of the other legislation.

Speaker Change: help with that.

and are pushing them to a point where they are potentially more viable, not that they don't require a significant amount of capital, not that they don't require a significant amount of time, but certainly don't bring with them the kind of risk.

of a new nuclear project. So it is certainly something on the table that we are evaluating and at the right time we'll put that forward as an option, if appropriate.

Great, thank you for that. And then, just want to kind of shift gears, given, you know, the big call on generation as you've outlined there.

Speaker Change: I'm just wondering any thoughts you could share with, I guess, coal retirement timelines, you know, what could be impacted there? And then even as it relates to carbon capture, is that something that you see as plausible for coal or gas or just any thoughts as it relates to Southern?

Speaker Change: A couple things. On co-retirements, clearly we're watching and paying attention to the EPA rules, and that will clearly instruct and inform us.

as we go through planning processes in terms of what the life of those projects will look like. So that's a couple of things that we'll, of course, continue to pay attention to. And what was the second part of your question?

Speaker Change: Just as it relates to carbon capture potential for both the coal and gas.

So, as you know, we've been operating the National Carbon Capture Center now for some 50 years. And so we initially were doing a lot of carbon capture research around coal. We have shifted that research now to gas. And we have...

Speaker Change: The vital role that natural gas will play in this economy and supporting electricity generation. And knowing how important it will be to bring forth technology for carbon capture as well as sequestration.

Speaker Change: We continue to pursue this work.

We know there's more research to be done.

to get this at a point where it's scalable. But we're going to continue to make this investment because...

We think gas will be essential for this country going forward, and we'll continue to invest in the National Carbon Capture Center, but also find other research opportunities to invest in carbon capture and research carbon capture.

That's very helpful. One last quick one, if I could sneak it in, just as it relates to the Pypes app opportunity as you laid it out there, I think it was part of the three billion there, but just was wondering, I guess, if you could provide a little bit more color on

What that could look like, just size of gas you'd like to get into your surface territory, and you know, what type of time frame do you see this ultimately unfolding over?

Yeah, so there's a lot of details there on the gas procurement side, Jeremy, that we can't share. I mean, that's proprietary information that's part of the project. There's, you know, those are contractual provisions between Southern Natural and all of the offtakers. Suffice it to say, the existing Southern Natural pipe

Speaker Change: You know, our entities between our electric generation fleet and Atlanta Gas Light and the marketers in Georgia represent 50% of the offtake of the existing pipe.

and so...

I don't think it's unreasonable that, you know, with an expansion project...

that we have the opportunity to be a pretty large participant as well.

As far as the timing of the project, again, I think all these details are probably out there in Kinder Morgan's materials, but just think about it essentially as a project that culminates sometime at the very back end of our forecast or late this decade.

Speaker Change: Got it. Very helpful. Thank you. You bet.

Thank you. Our next question comes from Paul Fremont, Ladenburg-Thelman.

Speaker Change: Hey Paul.

Hey, thanks for taking my question. Would you consider at this point adding fossil generation at Southern Power given sort of the significant demand that you're seeing for customers?

to add capacity.

Speaker Change: I mean, and Paul, you know, Dan has referred back to our model as we think about Southern Power.

Speaker Change: And so, that will guide a lot of work that we do in considerations that we have. I mean, and so...

As we look at projects, we look at creditworthy counterparties not taking fuel risk, but using that kind of discipline to guide what happens at Southern Power going forward, I think will instruct us in terms of...

What opportunities that may be available and what things we'll pursue, but I think it'll be premature to make any kind of commitment or any kind of

guidance in terms of what may happen there.

Yeah, if you think about, you know, other conversations we've already had along the way here, you know, environmental rules, things like 111D and what happens there, pipeline infrastructure and its availability to do projects like that, if we can mitigate those risks or the contract is designed in such a way that

Speaker Change: More than pays for those risks, then that's something we'll continue to keep on the table. So it's it's it's never no It's just a function of being consistent with our business model. Well, I think it's also being mean Remaining discipline. I mean, there's a lot of enthusiasm in the marketplace today but we've got a

As you'll hear me say a lot, we've got to remain disciplined. We've got to be true to kind of who we are and kind of our philosophy and values that we have in place and let that guide us as we move through kind of this.

incredible growth opportunities that we see here in this industry. We've got to remain disciplined.

And I guess you've identified sort of 8 gigawatts of committed load, including 3.6 gigawatts that were included in the last IRP. So how much of the 4.4 remaining

Speaker Change: should we assume is paid for by an individual customer versus being socialized over your entire retail load?

Substantially all of it by specific customers.

Okay, so it wouldn't most of it would would actually have a positive impact then on on customer bills

discipline and orderly process that there are mutual benefits of serving this load to the existing customer of this.

And the last question for me, we've seen sort of endless legal challenges to new pipelines.

Speaker Change: Thank you.

Speaker Change: would an expansion of SONADT

be subject to legal challenges, or how should we think about that?

Chris Womack: and Chris Womack.

Chris Womack: I think you have to believe it certainly has its susceptibilities as well and I think that's again factored in the way Kendra Morgan's thinking about the timeline.

Speaker Change: But you would need additional permitting and all the things that would sort of potentially lead to a legal fight.

Speaker Change: and Chris Womack. Thank you.

Yeah, there's about 90% of this particular project is brownfield, largely compression and looping. And so that greatly de-risks the opportunity. Doesn't mean there's not still requirements, but you're not.

Speaker Change: creating a brand new right-of-way for hundreds of miles and building a new pipe.

Speaker Change: Great. Thank you very much.

Thank you.

Speaker Change: Our next question comes from...

Durgesh Chopra, Evercore ISI

We're good. Hey.

Hey Dan, good afternoon. Thank you for giving me time. Hey, just a blue sky question Just what do you guys think of the SMR technology?

Chris Womack: at the end of the decade, but what is your experience with that technology? Have you had any discussions? Do you think it's scalable? Just kind of your position as a nuclear power operator, I'd just be curious, and what do you think of the technology itself? Thank you. Yeah, Dergis, this is Chris, and you've heard us talk before about our...

research and development organizations and the proprietary research that we do. And we have partnered with a number of organizations for years.

investing in SMR technology, researching SMR technology, and advanced nuclear and we follow it. We work very closely with with a lot of partners.

Speaker Change: I mean, there's a lot of work being done, but there's very few projects that are moving forward. There's a lot of discussion about them, but I think there's just a lot more work to be done to finalize the designs and finalize the engineering.

And we're following it and involved very, very closely. We think it's a...

It's very beneficial for us to follow, but also...

to be engaged on multiple fronts, even as we were building.

Vocal Unit 3 and 4. We continue to involve ourselves

with Gen 4 and additional advanced nuclear technology. I mean, that's kind of who we are and what we do as a company, and we're going to continue to do that.

Speaker Change: But...

From my perspective, they're still...

More work to be done.

Speaker Change: Before we get close to anything commercial, I mean, but there's a...

Speaker Change: There's a lot of talk out there, but I think there's more work and more design work and more engineering work to be done. Yeah, given that approach, I think what would be fair to say is that we view it as too early to put all of our eggs in one nuclear technology basket.

Speaker Change: Very clear, guys. I appreciate that added color. Thank you.

You're welcome.

Thank you. Our next question comes from Travis Miller, Morningstar Incorporated.

Good afternoon. Thank you. You're welcome.

A quick follow-up on the storm cost. Did you have any storm cost reserves or how much did you use of those that was available?

There was there was not a reserve going into this storm. We actually had a very small balance to be recovered, so this was additive to that. If you actually look at the balance, the balance is closer to 1.2 billion, whereas this particular reserve was 1.1 billion.

Speaker Change: Okay, okay. And then, higher level...

To serve that demand that you're talking about, especially that 8 gigawatts, if you were to decide to build, say, a gas unit or whatever today, in terms of supply chain, how long would it actually take you to get from concept today to...

flowing electrons to a new customer.

Speaker Change: and Chris Womack. Thank you.

Speaker Change: Well, I'm gonna start and Chris jump in here but...

I think in answering the question, I don't want to answer the question as though we haven't already done things to get ahead of that.

So, you know, we've taken the opportunity to get in the queue for long lead time equipment. We have, you know, partners from an EPC perspective that we've worked closely with very recently and very successfully.

And so we're, I would say, several steps ahead on that.

But then you have to step back and say, what technology? So is it a combustion turbine? Is it a combined cycle? Those are different timelines.

All that to say...

Speaker Change: Travis, I think we're in good shape. It's, you know, in general a three to five year time frame to kind of get gas generation from the beginning to the end, and given the long lead time nature of this load, we're pretty well positioned.

We're construction of those units.

Speaker Change: Okay, yeah, that's great, and then...

Speaker Change: What about T&D? Is there any difference in terms of supply chain or timing?

of Supplies, T&D versus Generation.

Speaker Change: No, I think it all overlays pretty nicely. Our lead times on large transformers and other major equipment longer than they used to be, yes, but we have visibility into that and are planning accordingly.

Speaker Change: Okay, perfect. No, appreciate it.

Speaker Change: Thank you, and our next question comes from Paul Patterson, Glenrock & Associates.

Speaker Change: Hey, Paul.

Paul Patterson: How are you doing?

I'm managing, so, yeah, happy Halloween, so...

Paul Patterson: Thank you. Bye. Bye.

It sounds like you guys are, you know, things are falling into place and everything, and it sounds like you guys are, I mean, in my...

Just to make sure that I'm understanding correctly, that you guys see upside to the sales growth expectations that you previously had, and obviously CapEx associated with that, correct?

Paul Patterson: Yes.

okay and that would in terms of in the past when you guys talked about this earnings increase there I'm sorry this sales growth increase etc there wasn't necessarily a direct impact on earnings

that you had seen. Should we think that perhaps with this more robust outlook that that might be coming out that

Paul Patterson: How should we think about that in terms of earnings, I guess?

Yeah, Paul, I'll go back to what I said earlier. To the extent we do indeed see this momentum continuing, and we do maintain our discipline about not getting too far ahead, or ahead at all, of any of the regulatory processes, and the line of sight on this stuff,

Paul Patterson: the opportunity to

Paul Patterson: reflect and provide.

A different outlook will not occur until the latter half of our plan. All of this is long-term in nature. There's as exciting as this is and as much work is happening around all this for us and the entire industry.

Paul Patterson: This load is on the back end of the forecast.

Paul Patterson: It's not this year, it's not next year, it's 28, 29, 30 and beyond.

Paul Patterson: Okay.

I just wanted to make sure that I don't know I thought I thought maybe I just want to make sure if there was anything else I should be looking at okay that's awesome and then just finally on the deferral excuse me on the on the storm cost when you when you're deferring the cost is it is it a cost of I mean you assume you're getting some sort of return is that return a debt return or is it how should we think about the return that's associated with the with the deferral

Speaker Change: Yeah, it's typically been our cost of capital, but again, with the magnitude of it and with, you know, the nature of it, the Commission has flexibility to adjust that just like they have done historically with us for other things, with large under-recovered fuel balances, you know, have a different financing cost associated with it.

Paul Patterson: Okay. Thanks so much. I really appreciate it. You bet, Paul.

All right, thank you. That will conclude today's Q&A session. I would now like to turn the call back to Chris Womack for closing comments.

Again, let me thank each one of you for joining us today. We are...

As we said, we're excited about where we are in the company and we're pleased with the performance we've had through the first three quarters of this year. And so, once again, we thank you for taking time to be with us and we wish all of you a happy Halloween.

Paul Patterson: Thank you very much.

Thank you. That will conclude today's teleconference. You may disconnect your lines at this time.