The operator welcomes everyone to The Southern Company's Third Quarter 2023 Earnings Call and introduces the speakers, Scott Gammill and Chris Womack. Womack discusses the company's performance during the third quarter, including the successful operation of Plant Vogtle Unit 3 and meeting financial targets for 2023. He also mentions the possibility of forward-looking statements and the availability of non-GAAP financial information on the company's Investor Relations website.

The speaker provides an update on the company's recent announcements, including recognition for economic development efforts, the filing of an integrated resource plan in Georgia, and the acquisition of two new solar facilities by Southern Power. The company is focused on providing economical energy solutions and diversifying its approach to ensure resilience and reliability for customers.

Southern Power has completed two new solar projects, bringing their total carbon-free generating capacity to 5,500 megawatts. They have also successfully placed a new combined cycle unit in service and have plans to continue constructing new natural gas and renewable units to meet the region's energy needs. The company has also announced a partnership with the U.S. General Services Administration to develop carbon-free electricity solutions for federal facilities in the Southeast. They have also released their annual sustainability summary, highlighting their progress in advancing clean energy and serving their communities.

In the third quarter of 2023, the company's adjusted earnings were $1.42 per share, $0.12 higher than last year. This was mainly due to warmer weather, changes in rates and pricing, and lower expenses. For the nine months ended September 30, 2023, adjusted earnings per share were $3.01, which is $0.34 lower than the same period in 2022. This was largely due to mild weather conditions in the Southeast. The company expects to achieve its full year adjusted earnings near the middle of its guidance range. Electricity sales have been slightly lower compared to last year, but the company has added more customers than pre-pandemic levels. Commercial usage has been strong, but there has been a return to pre-pandemic levels for residential sales.

The lower industrial sales in the service territories are due to the decline in traditional industries such as chemicals and paper, and the rise of new industries like solar panels, batteries, and electric automobiles. The company has seen a significant level of economic development activity, which is expected to result in a mid- to high single-digit growth rate in electricity sales over the next five years. This will require additional capital investment, but both existing and new customers are expected to benefit from this growth. The company also provided an update on the progress at Vogtle Units 3 and 4, with Unit 3 performing well and Unit 4 facing a motor fault in one of its reactor coolant pumps.

The company has made progress in clearing the path for the removal of the existing reactor coolant pump and expects to begin this process soon. Other preoperational activities are also ongoing, including coatings and preparation for power ascension testing. Once the spare pump is installed, start-up and testing will resume, with a projected in-service date in the first quarter of 2024. The company has filed an application for rate adjustments with the Georgia Public Service Commission, and a vote is expected in December. The company remains confident in the 1Q 2024 timeline for completion, but is monitoring potential factors that could impact this timeline.

The company is confident in their process for replacing pumps at Unit 3 and expects to see significant capital opportunities to support load growth. They plan to balance debt and equity and expect to see an increase in their capital plan, potentially reaching billions of dollars. They also plan to include owned renewables in their forecast but will wait until there is more certainty about those projects. They have clear credit objectives in mind.

Dan Tucker, CEO of a company, believes that their profile is unique and they aim to maintain that. They have a large drip program that generates $350 million to $400 million annually and also have flexibility with their shelf and market programs. They will do what's necessary to maintain their credit profile, which will likely include using equity. However, they do not plan to increase their parent debt percentage as the business grows. A question was asked about the opportunity set and its relation to their growth target of 5% to 7%.

Dan Tucker and Chris Womack have been discussing the potential for growth and investment opportunities with the investment community for months. They are not looking to temporarily increase growth, but rather strengthen it in the long term while maintaining customer affordability. They will provide an update on their plans for 2024 in their call in February. The company is facing headwinds with interest rates but is excited about the potential for development opportunities.

Shar Pourreza asks Chris about the parent level maturities and how they plan to manage the interest rate pressures in the next few years. Dan Tucker responds by saying they will be thoughtful and creative in managing it, as seen with their recent convert. He also mentions the industry's expectation of higher interest rates for longer and the windfall of economic development activity they have. In terms of sensitivities, he estimates a 50 basis point sensitivity around interest rates with each incremental year potentially impacting EPS by a penny. Shar thanks them for the color and mentions seeing them in a week. The next question is from David Arcaro about load growth.

Chris Womack discusses the potential for increased electric load growth in the next few years, with the inflection point likely occurring in late 2025 or early 2026. He also addresses a pump issue on Unit 4 and states that it is too early to determine if it is a design issue or a one-off incident. He mentions the importance of economic development activity and the time it takes for facilities to be built and staffed. Another analyst, David Arcaro, asks for more information on the pump issue and Chris Womack explains that their focus is on removing the pump and replacing it with a spare before investigating the cause. The call ends with a question from Julian Dumoulin-Smith.

The speaker asks about the potential for increased capital expenditures in Alabama and the company's plans for ownership. The speaker also clarifies the company's plans for maintaining a flat level of FFO to debt, including the impact of the DRIP program. The company plans to have a mix of ownership in all of its electric service territories.

The speaker is discussing the company's expectations for the year 2024 and how they may change based on factors such as interest rates and load forecasts. They mention that they do not want to make any presumptions about the exact mix of third-party PPAs and that their long-term objective is to keep the equity to CapEx ratio flat. The speaker is then asked about the company's expectations for 2024 compared to their initial projections at the beginning of the year and how factors like interest rates may impact those expectations.

Chris Womack and Dan Tucker discuss the process of giving guidance for 2024 and mention that they will take into account both tailwinds and headwinds, such as economic development and interest rates. They state that it is premature to give any indication or guidance at this point and will do so in February of 2024. They also mention their excitement about their value proposition and the potential for CapEx upside, but do not want to get ahead of the regulatory process.

The speaker discusses the impact of load growth on resources needed to meet peak loads, stating that customers are expected to use electricity 24/7. They also mention that the current rate structures are sufficient to cover the cost of capital needed for this growth, and that economic benefits for other customers can help with affordability. The speaker also mentions that the third quarter was better than expected due to weather, but the first half of the year had substantial headwinds. They state that this is the reason for the middle of guidance expectations for the end of the year, but note that they have a history of exceeding quarterly estimates.

The speaker is discussing the Georgia IRP and the decision to update it earlier than the typical three-year cycle. They mention that they had informed regulators of the possibility of an update and are now waiting for a decision in April of 2024. They also mention the potential to postpone plant retirements in response to growing demand. The speaker clarifies that the upcoming CapEx update in February will not reflect any changes related to this and that those decisions will be made in the future.

The speakers, Dan Tucker and Chris Womack, discuss the assessment of their current situation and the upcoming decision in April 2024. They also address the ongoing litigation and redistricting in Georgia, and the uncertainty surrounding the potential impact on Southern. They mention the importance of natural gas in their energy mix, but note that it is becoming more difficult to build pipelines to supply the state.

Chris Womack discusses the potential for incremental supply of natural gas, mentioning efforts to expand pipeline capacity and find alternative options. He also mentions the company's interest in green hydrogen and their participation in a hydrogen hub in the Midwest. They are looking at all options for renewable resources, including hydrogen. Angie Storozynski has two questions.

Southern Power has recently announced the acquisition of two solar projects, which is surprising considering their struggle to find economically viable projects. However, the company has started pursuing solar projects again due to the Investment Tax Credit (IRA) unlocking development opportunities. These projects fit the company's criteria of long-term contracts, creditworthy counterparties, and better equity returns. Southern Power is a BBB+ company and their natural gas fleet is considered a crown jewel in the Southeast due to its reliable capacity. These acquisitions are seen as a great opportunity for the company to grow.

Angie Storozynski asks about the use of PACS credits for managing FFO and the recent management changes at Alabama Power. Chris Womack explains that the company pays attention to succession planning and may bring in talent from outside to improve the team. Dan Tucker adds that the company is not using non-traditional means such as divestitures or minority interest sales for financing at this time.

During the third quarter earnings call for The Southern Company, Dan Tucker and Travis Miller discussed the company's toolbox for alternative sources of capital, which has become smaller over the years. They also mentioned that there are currently no opportunities for sale. In terms of dividends, the Board is looking to reach a sustainable payout ratio before considering a higher growth rate. The call concluded with Chris Womack thanking everyone for their interest and inviting them to reach out with any questions.

This summary was generated with AI and may contain some inaccuracies.