The Southern Company (NYSE:SO) Q1 2024 Earnings Call Transcript

The Southern Company (NYSE:SO) Q1 2024 Earnings Call Transcript May 2, 2024

The Southern Company beats earnings expectations. Reported EPS is $1.03, expectations were $0.898. The Southern Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. My name is Robert, and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company First Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Scott Gammill, Vice President, Investor Relations and Treasurer. Please go ahead, sir.

Scott Gammill: Thank you, Rob. Good afternoon, and welcome to Southern Company’s first 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, 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’ll 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.southerncompany.com. At this time, I’ll turn it over to Chris Womack.

Chris Womack: Thank you, Scott. Good afternoon, and thank you for joining us for what is such an exciting time for our company. Monday, we announced that plant Vogtle 4 successfully achieved commercial operation. Units 3 and 4 now deliver more than 2,200 megawatts of reliable 24/7 carbon-free energy and are designed to do so for decades to come. With all four units operational, the Vogtle site is now the largest generator of clean energy in the country. I cannot be prouder of our team’s perseverance and commitment to getting Vogtle Units 3 and 4 completed with the standard of quality clearly demonstrated by Unit 3’s performance since it reached in service last July. Along with our own team, success on this historic project required the hard work and dedication of tens of thousands of American craft workers and engineers, a committed group of co-owners and regulators who had the courage to support new nuclear when others did not.

While it was not our mission when we embarked on this project and while it was at times an arduous journey, we have proven that new nuclear is achievable in the United States. With ever-increasing demands for carbon-free energy and the burgeoning demand for reliable 24/7 energy to support our digital economy and society, we believe our country will need more nuclear energy. So the importance of this project for Georgia and our nation cannot be understated. This is what making history looks like. These are the first new nuclear units built from the ground up here in the United States in over 30 years. And we are proud to be the company that saw it through. Dan, I’ll now turn the call over to you for a financial update.

Dan Tucker: Thanks, Chris, and good afternoon, everyone. For the first quarter of 2024, our adjusted EPS was $1.03 per share, $0.24 higher than the first quarter of 2023 and $0.13 above our estimate. The primary drivers of our performance for the quarter compared to last year were investments in our state-regulated utilities and weather that was less mild for our electric utilities than in the first quarter of 2023. This is somewhat offset by higher interest expense and depreciation. A complete reconciliation of our year-over-year earnings is included in the materials we released this morning. All our businesses experienced a strong start for 2024, driving our results meaningfully higher than our estimate of $0.90 per share.

While there were several factors for this performance versus our estimate, one worth highlighting is the higher than expected weather-adjusted electricity sales in our commercial customer class. This was driven by a combination of our strong local economies as well as increased usage by many of our existing data center customers. Sales to data centers were up over 12% for the quarter compared to last year. Overall, weather-normal retail electric sales to all classes were 1.7% higher than the first quarter of 2023. Industrial sales are beginning to show signs of recovery following a soft 2023, with year-to-date increases led by the lumber and paper industries. The Southeast regional labor supply remains above pre-pandemic levels. Employment growth is strong and unemployment is low, averaging approximately 3% across our regulated electric jurisdictions.

A favorable business climate and increased expansion of manufacturing is attracting new households to the Southeast, driving continued net in-migration and customer growth. Before turning the call back over to Chris, I’d like to highlight our most recent dividend increase. Last week, the Southern Company Board of Directors approved an $0.08 per share increase in our annual common dividend, raising the annualized rate to $2.88 per share. This action marks the 23rd consecutive increase, and this will now be 77 consecutive years dating all the way back to 1948, that Southern Company has paid a dividend that is equal to or greater than the previous year. This remarkable track record remains an important part of Southern Company’s value proposition.

In one quick note, our adjusted EPS estimate for the second quarter is $0.90 per share. Chris, I’ll turn the call back over to you.

Chris Womack: Thank you, Dan. Our system performed extremely well, and that’s a testament to our team’s collective commitment to serving customers reliably across our business, especially as we meet the demands of the extraordinary growth that we’re seeing. Particularly within our Southeast footprint, we continue to see strong economic development activity with first quarter investment announcements, representing the second highest first quarter on record, as our teams continue to work closely with our states and local development authorities to attract new businesses. This growth continues to reflect a diverse mix of sectors with recent announcements, including automotive suppliers, flooring and glass manufacturers, data centers and mixed-use developments.

During our year-end earnings call in February, we updated our forecast to reflect projected retail electric sales growth that is accelerating to a projected growth rate of approximately 6% from 2025 to 2028. The underlying Georgia Power projected sales growth rate is approximately 9% over the same period. As we look ahead, we’re encouraged to see the signs of incremental growth also materializing in Alabama and Mississippi. A little more than weeks ago, the Georgia Public Service Commission approved a stipulated agreement among Georgia Power the Public Service Commission staff and multiple interveners in the 2023 IRP update docket. This approval affirms the need to quickly procure and deploy several thousand megawatts of resources to serve customers for rapidly growing project electricity demands by the winter of 2026 and 2027.

Georgia Power was also authorized to build and own a balanced collection of resources, including new natural gas combustion turbines and battery energy storage systems, while also providing for an accelerated RFP process for incremental battery energy storage systems. The constructiveness and timeliness of decisions like this are a testament to the quality of our Southeastern states regulatory environment and our ability to meet the projected rapid demand growth garnering headlines across the country. Coinciding with Georgia Power’s 2023, RFP update filing last fall, and the release of our sales forecast in February, external attention, including from the investment community has focused on several key questions. How do you know the load in your forecast is real?

How do you know you’re pricing this new load appropriately? And what protections are in place if the forecasted boat does not materialize? Those are all very important questions, and the answers are all fundamentals of how Southern Company has run our electric utilities for a very, very, very long time. We’ll address each one of those questions in just a moment. First, I want to share with you what we believe are the four key characteristics required to successfully navigate this tremendous growth opportunity. We believe Southern Company is positioned as well or better than any utility company in the country on these four fronts. First, it requires supportive states and constructive regulation. Our states continue to be great economic development partners, and they have advanced economic policies that support healthy growth.

When it comes to utility regulation, our states are among the best in the country at balancing the needs of customers while helping ensure utilities provide real value to customers in the form of clean, safe, reliable and affordable energy. Second, it requires institutional wherewithal. We have vast expertise and experience deploying energy infrastructure. We’ve been investing billions to improve the resilience of our electric and gas transmission and distribution networks. In recent years across our subsidiaries and across the country, we’ve built thousands of megawatts of energy supply in the form of new solar, wind and battery facilities, advanced micro grids, a state-of-the-art combined cycle natural gas plant and the only new nuclear units built in this country and more than a generation.

These new assets along with the existing electric and gas infrastructure we operate have served customers with a superior measure of reliability and resilience. We have the people, we have the experience and we have the scale to be successful. The third requirement is a flexible pricing framework. Our electric utilities working with existing customers approved by their respective public service commissions have a history of being able to price new large load projects appropriately even in periods of high demand and challenging market conditions. These frameworks are designed to benefit all customers. For example, Georgia Power’s real-time pricing rate, or RTP, which was pioneered decades ago allows for the flexibility to price individual customers based on their unique, low profile and risk characteristics.

And finally, success in this environment requires experience and discipline, experience understanding utility economics and the true marginal cost to serve new customers. Experience identifying and mitigating the risk inherent and new or expanding large load customers, and experience and competing for new load with an objective of capturing tangible economic benefit for customers and states. Our experience, combined with the robust models and tools we employ are partially a product of the competitive economic environment we’ve navigated in the Southeast for decades. For example, in Georgia, most new large load customers can choose their electricity supplier. Over the years, we’ve been the chosen provider more often than not, however, as to load we did not win or perhaps did not even choose to compete for that reflects our discipline and experience.

By offering prices designed to recover the marginal cost to serve new loads, we seek to protect all other customers and importantly maintain our credibility with our regulators and state policymakers. I’ll now turn back to Dan to address those three key stakeholder questions pertaining to this extraordinary growth opportunity.

Dan Tucker: Thanks Chris. So how do we know the load in our forecast is real? The short answer is that we’ve already incorporated risk adjustments to the forecast. One could argue it’s a conservative view. We would say our forecasts are informed by our experience and by our continuous engagement with prospective, new and existing customers. We’ve included a visual representation of our process in the slide deck. Typically, our forecast appropriately represents only a portion of the full potential load we might ultimately serve. If a customer has not formally communicated state specific project details with our company, they’re not included in the forecast. If they have a choice of utility provider within the state that they have chosen, which is the case in each of our states, they are either not included or only included at a reduced probability weighted level.

Importantly, even once a customer has committed to one of our utilities, we further risk adjust the forecast based on the likelihood of delays on the customer side, whether those are construction delays or delays in ramping up production. And lastly, we further risk adjust the forecast based on the history of announced loads being higher than actual customer loads. Lower actual customer loads often result from technology improvements, economic conditions or other factors. All of that to say, we believe our forecast is the best representation of expected future demand. And with the potential for additional new customers to choose our states and utilities, there is potential for our forecast to be higher down the road. Next, I’ll discuss pricing.

When it comes to knowing that we’re pricing this load appropriately with a view towards protecting existing customers, several of the factors Chris mentioned a moment ago are key. We use our experience and robust tools to ascertain the expected marginal cost to serve each new customer and incorporate that into our flexible pricing mechanisms. We priced the load in a manner that helps ensure the marginal cost will be borne by the new customer. Sometimes, as is the case with Georgia Power’s recent growth, we’re able to provide new large load customers with competitive market pricing that also provides meaningful benefits back to existing customers. These benefits are not only driven by carefully constructed market pricing. They’re also a function of a robust, long-term integrated resource planning process and Georgia Power’s ability to use existing resources to serve a large portion of the new demand, while only needing to incrementally invest to meet higher peak demands.

The stipulation the Georgia PSC recently approved includes a commitment by Georgia Power for these customer benefits to be incorporated into the 2025 rate case. Our approach to pricing has never been more important given the current macroeconomic backdrop. Affordability is a key tenet of our customer-centric business model, and we work hard to ensure new customer demands don’t place additional burdens on those less able to afford it. Lastly, the risk question, what protections are in place for our forecasted load does not materialize? I’ve already described how we’ve risk adjusted the forecast itself, the other major risk mitigations pertain to local infrastructure improvements and our portfolio of supply resources. These new large load customers often require significant local distribution system improvements, and these improvements often provide limited incremental benefit to other customers.

As a result, we require most new large load customers to pay for these improvements upfront, helping ensure other customers are protected. When it comes to supply resources, the risk mitigation comes in the form of the diversity of our resources. Purchased resources or PPAs, can expire without being renewed. Older owned resources which might require additional investments or higher maintenance O&M spend to remain available over the long term can be retired earlier. Decisions and risk strategies like these are a key aspect the multiyear integrated resource planning processes in each of our states. With robust long-term planning comes optionality in future decision-making. Said differently, planning for 20 years of resource needs every 3 years helps ensure that customers benefit from a flexible resource plan that is equally focused on reliability and affordability.

Chris, I’ll turn the call back over to you to wrap up our prepared remarks.

Chris Womack: Thanks, Dan. Before taking your questions this afternoon, I’d like to first take a moment to reinforce that as we serve these growing energy needs, we also remain focused on achieving our long-term greenhouse gas reduction goals, including net zero greenhouse gas emissions by 2050. Working closely with each of our states, and with an unrelenting focus on safely and reliably serving our customers’ needs, we continue to make responsible economic resource decisions over the long term. For example, over 80% of the resources additions plan across our system totaling nearly 10,000 megawatts from 2023 to 2030 are zero carbon emitting resources. We have accomplished some wonderful things in recent weeks, and we are even more excited about our future.

We have seven quality state-regulated utilities with long track records of outstanding operational and financial performance that deliver over 90% of our earnings, along with a few quality complementary businesses, we believe we have the ideal portfolio to support our long-term objectives. Southern Company’s value proposition has never been more attractive. Our team has never been stronger, and we are positioned as well as we ever have been. As I said earlier, we have the people, the experience and the scale for sustained long-term success. Thank you, as always, for your interest in Southern Company. Robert, we’re now ready to take questions.

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Q&A Session

Operator: Thank you. At this time, we’ll begin the question-and-answer session. [Operator Instructions] Our first question comes from Carly Davenport with Goldman Sachs. Please proceed with your question.

Chris Womack: Hey, Carly

Carly Davenport: Hey, good afternoon. Thanks. Hey, how is it going? Thanks so much for taking the questions today.

Chris Womack: Thank you.

Carly Davenport: Good to see the strong sales growth coming in during the quarter. I guess just as we think about the impact to earnings from some of these volumes, are there any sensitivities that you can provide around the commercial load or the data center load specifically there?

Dan Tucker: Yes, absolutely. So just big as a bread box. So it’s roughly — if you think about our total sales, the average price, you’re talking about $40 million for a 1% change in our overall sales. Now for the vast majority of what’s showing up here, whether it’s data centers, some of these other large load industrial customers, it may skew slightly below that. So really it’s somewhere in the range of $20 million to $40 million for 1% change in sales.

Carly Davenport: Got it. That’s super helpful. Thank you. And then, just as a follow-up, as you think about the recent commission approvals on the 23 Georgia IRP filing, do you see any incremental capital needed relative to what you previously laid out on the fourth quarter call?

Dan Tucker: So there will be some additions based on the approval, Carly, and that largely pertains to the additional storage resources, the battery energy storage system. So if you recall what we included was two very specific projects in our outlook, but the commission actually approved 500 megawatts of owned storage, which is a little more than double what we had assumed. And so total dollars is going to — I’m going to give you a big range. And I’m going to throw in here if you didn’t see, we also announced an expansion of one of our solar projects in Southern Power. So that also was not included in our forecast back in February. So all told, you’re somewhere above $500 million, a little south of $1 billion, probably. And what we’ll do, we don’t want to get too far ahead of the regulatory processes. There’s specific certification processes to go through. So we’ll let all that play out and then update our forecast more formally later on.

Carly Davenport: Understood. Thanks so much for the color.

Dan Tucker: You bet, Carly.

Chris Womack: Thank you.

Operator: Our next question is from Steve Fleishman with Wolfe Research. Please proceed with your question.

Chris Womack: Hi, Steve.

Steve Fleishman: Hi, can you hear me?

Chris Womack: Yes, we can hear you.

Steve Fleishman: Yes. Great, okay. Well, first, congrats on getting Vogtle up and running. That’s great. And just — I know on the last call, you talked to the better sales growth, and you raised the CapEx and now there’s a little bit more potential to come, and then to reaffirmed squarely in the 5% to 7%. And I know you’re a big company, and obviously, it’s a lot to move the needle of 5% to 7%. But just is it fair to say that as you are adding this capital that at least within this range of 5% to 7% or some benefits of adding the capital even net of financing?

Dan Tucker: Yes. Look, I think it’s fair to characterize that everything that is occurring and particularly if the momentum continues and what we’re seeing, I would characterize that as adding an upward bias to where we are from an earnings perspective. And you kind of said it, Steve, and we certainly saw your commentary and your note yesterday. We are a big company. We are issuing equity. But even with all of that, these incremental investments should have an accretive effect. But I think it’s just too soon to say exactly what that means, but an upward bias, absolutely exists, particularly if this momentum continues. Now, does that mean change in growth rate? Probably not. Does it mean maybe that growth rate is off of some higher number later down the road? Probably so.

Chris Womack: And Steve, the only thing I’d add is we talked to you before about not just about raising growth rates, but it’s about the durability and the length, how we extend the runway is something that we are keenly focused on as we’ve talked to you many times about. And I think that’s clearly an opportunity that we are afforded by this added growth.

Dan Tucker: And then the only thing I’d add is also the thing that we are really gratified to see as part of this whole dynamic is a derisking of our outlook. Because of these customer benefits the affordability equation is greatly improved, and that’s a good thing for the long-term sustainability of our business.

Chris Womack: And Steve, the only thing I’d add, I mean, one of the things that we talked about in our prepared remarks, we’ve talked to you more about how do we use this opportunity to make sure we put downward pressure on rates across our customer classes and making sure that we price this new load in the right way. And I think we’ve demonstrated our ability to do that and having the resources and tools to do that going forward. So, it provides us additional excitement for us as we go forward.

Steve Fleishman: Okay. That’s all helpful. And then just a different topic. Just on — I think as you go back to the last call since then, we’ve had, I think, a bill on the Commissioner status. I don’t know if we’ve had an update on kind of the election court cases, and then there was that bill about bringing back a consumer council there. Just can you update us on all those developments?

Chris Womack: Yes, the consumer advocacy group inside of the commission, that bill was not passed by the legislature. The legislature did pass a bill that provided what I think is some certainty around the election cycle going forward for the commissioners. There was some confusion chaos and time and schedule got a little short because of the court cases. And so as a result, the legislature didn’t pass a bill that laid out the order and schedule of elections for commissioners between 2025 and 2028. And so the thing about that, that I think is very instructive is that the current commission in Georgia will be the commission that will sit to review Georgia Power’s 25 IRP as well as Georgia 25 rate case. So there is order and schedule for the commission for the next two to three years — out to 2028.

Steve Fleishman: And then just last question going back to the data center update, which was very helpful. Just we’re hearing from a lot of other utilities about data center growth that they’re seeing. And obviously, you’re kind of somewhat at the forefront of that. But just you mentioned in some cases, taking deposits or taking money to kind of lock that in, that the customers can pay upfront. But just how are you trying to assess the risk of some of the customers putting themselves in line in six different regions and then in the end, only picking two of them and just making sure that you’re not on the losing end of that? Or just trying to kind of put that into your assessment of risk?

Dan Tucker: Yes, Steve. I think that’s what we tried to capture a little bit in what we laid out in the, I guess, Slide 11 in our deck. It’s we’re not counting on those that could potentially still be trying to put multiple states or utilities on the hook. Really until we have pretty firm line of sight and that bilateral conversation and commitment between them and our utilities, it’s really not solidly in there. There may be some degree of risk adjusted or kind of a probability-weighted aspect just, because there’s so much activity out there. But we feel pretty good about — I got I hate to use the word, but it’s — I think our forecast is fairly conservative in that regard.

Steve Fleishman: Okay. Now that’s helpful. Thank you very much.

Dan Tucker: Thanks Steve.

Operator: Our next question is from Shar Pourreza with Guggenheim Partners. Please proceed with your question.

Chris Womack: Hey, Shar.

Shar Pourreza: Hey, guys. Hey, Chris. Can you — just a follow up from Steve’s question. Just can you elaborate a little bit on the timing of sort of any guidance update around that “upside bias” you just kind of referenced. I guess what’s the trigger event, whether you guide to the top end a rebased higher and grow 5% to 7% off of that? I guess I’m just trying to figure out what would move that needle. What’s the event?

Dan Tucker: Yes. So importantly, Shar, the way I characterize that is that if we continue to see this momentum, right? So it’s certainly not the cards we have today. The cards we have today have greatly improved our overall profile. It’s added that durability. It’s massively derisked kind of the outlook. But it’s going to take continued momentum on this front more investment, more sales growth over the long-term. And then just in the disciplined way we do we’re not going to make updates like that kind of intra year, right? I mean, to the extent there’s an update to be provided, it’s going to be in our fourth quarter call, and it’s going to have to be with a pretty — as big a company as we are, a pretty significant needle-moving event within the profile.

Shar Pourreza: Okay. That’s perfect. And then, Chris, maybe just quick one for you. There’s been obviously kind of a debate in the industry around sort of the behind the meter and in front of the meter, in language from some of the hyperscalers seem to show a little bit of a preference around self-generation and self-supply with some backup capacity, which can obviously impact some of the demand numbers as we’re thinking about things more prospectively, right? I guess, Chris what conversations are you having around this as you kind of engage with new customers? Thanks.

Chris Womack: So I’d say we’re having a lot of conversations that cover all of those options and all those considerations. I mean, I think as you talk to these hyperscale data centers, one, they want the power, they want resilience. They want the reliability. Some of them want clean, and they recognize the demand that they’re putting on load in, in certain locations. And so their considerations do they self generate, do they want support from behind the meter. So I think you go across the continuum of options reflects the conversations that we are having with them, one, to understand what their needs are, but also to help them understand our business and how we provide service and how we operate as a company. Yeah, I mean, we’re trying to — want to serve them as customers.

But I think we’re also in a period where there’s just a lot of instruction and education that’s occurring in the marketplace today. And so the thing about our company is with all the complementary subsidiaries that we have in this portfolio, we have the opportunity to support them and help them in multiple different ways. So I think that’s another aspect of our portfolio. That’s pretty exciting as we look at this demand and what’s happening in the marketplace today and that we have resources and capabilities to serve them and support them in a number of different ways.

Shar Pourreza: Got it. That’s perfect. That’s all the questions I have. Thanks guys. Appreciate it. See you soon.

Chris Womack: Thanks Shar.

Dan Tucker: Thanks Shar.

Operator: Our next question comes from Nick Campanella with Barclays. Please proceed with your question.

Nick Campanella: Hey, good afternoon, everyone, and congrats on Vogtle, really excited stuff.

Chris Womack: Thanks, Nick.

Nick Campanella: Yeah, absolutely. So on the sales growth, you talked about things bubbling up in other jurisdictions just outside of Georgia. And can you just remind us what you’re assuming there, what’s embedded in the plan versus where the upside of those tickers could go?

Chris Womack: I don’t think there’s anything embedded in the plan. I think we — it’s about announcements and that we see forthcoming. We know – I think there was an announcement today in Alabama of a 200-megawatt facility that Meta just announced. And then you saw also some legislation in Mississippi that was providing incentives for data centers and other hyperscalers to come into Mississippi. So we see it coming, but that activity — those projects have not assumed are not included in the forecast as we talk about it today.

Nick Campanella: That’s very clear. And then, Dan, I just wrapping in that $500 million to $1 billion figure that you were discussing on the CapEx side. I understand this is outside the plan now and probably not coming to your yearly update. But just — how do we think about the credit implications? And I know last quarter, I think you said you were 14% to 15% FFO to debt in 2024 with a 60 basis point improvement every year thereafter. Is that still the way to think about the uplift here over the next few years? Maybe you could comment on that?

Dan Tucker: Yeah, absolutely, Nick. That profile we described in the fourth quarter that ramps from that 14% last year up to 17% in the back half of the plan, it’s absolutely still the profile to watch as this incremental capital opportunity emerges, what we’ll do is issue sufficient equity probably through something like an ATM and through our plans to kind of restore the metrics to where they would have otherwise been without that incremental CapEx. And again, kind of going back to Steve’s question, yes, even doing that, this incremental CapEx will have an accretive effect.

Nick Campanella: All right. Thanks a lot.

Operator: Our next question comes from Durgesh Chopra with Evercore ISI. Please proceed with your question.

Durgesh Chopra: Hey, guys. Thank you for taking my question, and congrats on Unit 4.

Dan Tucker: Thanks, Durgesh.

Chris Womack: Always good to hear from you.

Durgesh Chopra: Thanks, Chris. Thanks, Dan. So Dan, I was just curious in your commentary, you mentioned 12% growth from data center sales growth. Just can you break that for us? How much of that is new data centers versus is that — or is it just existing data centers using newer technology?

Dan Tucker: So it’s about three quarters existing data centers and then a little bit the other quarter kind of coming from new data centers year-over-year. So we’re seeing both. We’re seeing a continued ramp-up of new facilities, existing facilities ramping up their usage.

Durgesh Chopra: That’s terrific. Cool. And then just one quick follow-up on the legislative front. I’m not sure if the House Bill 1192 was actually passed and signed into law, and that talks to kind of suspending the, I believe, the sales stack exemption on data centers. Maybe can you just address that? Where does that sit? And what implications, if any, do you see on the data center growth in Georgia?

Chris Womack: Yeah. I mean I think that I mean, it passed and now sitting on the governor’s desk and so waiting to see what happens there. I think one of the things the government wants to do is let economic development activities know that Georgia is still open for business. And so I think that’s one of the key factors in consideration that he will pay attention to as he makes a decision on that bill. But right now, I don’t know what will happen, but it’s there for him to take action on. And so we’re waiting just like everybody else to see what happens.

Durgesh Chopra: That’s fair. Thanks Chris and Dan. Thank you.

Chris Womack: Thank you. Durgesh.

Dan Tucker: Thank you.

Operator: Our next question comes from Jeremy Tonet with JPMorgan. Please proceed with your question.

Jeremy Tonet: Good afternoon.

Dan Tucker: Hey, Jeremy.

Chris Womack: Good afternoon.

Jeremy Tonet: Congratulations on Vogtle Unit 4 there. Just wanted to continue with the topic as you are and given the notably higher than expected load growth in earnings, in ongoing data center investment in your service territory, just wondering how you think this impacts future generation mix and specifically coal plant retirement dates given what’s happening here? Is there — could there be deferrals or just any thoughts on that?

Chris Womack: I think that’s a lot to come. And I’d add one more factor there. It’s the new EPA rules, and we saw the suite of announcements that came out of EPA last week, which we are reviewing. And many of the rules we think are in practical in terms of aligning with the kind of demand that we see forthcoming, and also from a technology standpoint, some expectations that they are advocating and putting forward don’t align necessarily with the reality. So there’s a lot of — I think a lot of issues that are up in the air. At the state level, I think as we look at how we respond to the demand, how we respond to this need, all those considerations must be on the table in terms of new generation, what happens to existing generation.

Those all get extended, what happens there. All of that has to be on the table, but we also have to factor in what are the potential new rules from the Environmental Protection Agency. So I would say all of that is very subject to for the consideration as we move forward through all the processes that we’ll be a part of.

Jeremy Tonet: That makes sense. And how do you think about the feasibility of carbon capture in your territories?

Chris Womack: Geologically, yes. I mean there are places down on the coast. The mobile [ph] area, some parts of Mississippi, where we have the geology for sequestration. But once again, I think as you look at what is somewhat predicated in some of these roles and the expectations and what the desires are — is the technology available at a commercial scale to do what they’re asking us to do. I think there are a lot of questions there So I think it’s — I go back to these rules, I think they are in practical at this time. And so I think there’s more work to be done and more conversations to be had about how they should go forward. But we’re still doing the analysis because it’s a lot of pages, a lot of work, and then we’ve got to decide what we do going forward in terms of litigation and whether it’s with our stage, whether it’s with the other different associations. So there’s a lot of work to be done there, a lot more conversations to be had.

Jeremy Tonet: Got it. That’s very helpful. Thanks. And one last one, if I could. Just given nuclear’s ability to offer base load that is very suitable for data center and other demand as such. Just wondering any updated thoughts on the viability of that technology down the road? And how Southern thinks about that? Thanks.

Chris Womack: I mean I can give you my speech if you’d like to hear it. I mean the country is going to need more nuclear. I mean there’s clearly no technology better suited to support demands of this increasingly digital economy and society. And so I think the federal government has got to step in and provide great leadership to incent companies to move in that direction. I’d also say we’re going to celebrate what we’ve done at Vogtle for a very long time before we give any consideration to any more. But we think others, they have the opportunity and should really look at this country has to look at new nuclear to go forward to meet this growing demand.

Jeremy Tonet: Makes sense. Thank you for that. I’ll leave it there.

Chris Womack: Thank you.

Operator: Our next question comes from Anthony Crowdell with Mizuho Securities. Please proceed with your question.

Anthony Crowdell: Yes. I think that last question was asking you about Vogtle 5 and 6, but I’m not sure. But I guess just a quick one. Last month, there was approval overwhelmingly approved the Georgia Public Service Commission, the IRP. But just curious, any commentary on some of the language related to rate increases. And you guys have laid out, especially on the slides, great information on how you’re navigating the challenges of adding all this infrastructure, but focus on the customer bill. And just if you could tie that to the language on one of the approved — during the approval with maybe no more bill increases.

Dan Tucker: Yes, Anthony, this is Dan. Look, I think largely, any commentary you heard was simply focused on affordability and ensuring that the benefits that Georgia Power said we’re there, end up reflected in customer rates. And that’s exactly what the stipulation does is provide that commitment so that when we file the 2025 rate case, 1 of those moving parts is going to include incorporating those economic benefits for all customers into that calculation.

Anthony Crowdell: Great. That’s all I had and congrats again.

Chris Womack: Thanks.

Dan Tucker: Thank you.

Operator: Our next question comes from Angie Storozynski with Seaport Global. Please proceed with your question.

Chris Womack: Hi Angie.

Angie Storozynski: Thank you. So first maybe about your — the Southeast Energy exchange market. So, when it was first created, I thought that was a sign that maybe there’s some excess power in your neck of boots and then you’re trying to distribute it to other parts of the Southeast. Now, I’m thinking the other way. But maybe there’s a way to move some power into Georgia to actually address the load growth. Again, I’m just clearly fishing for any upside potential associated with this newly created power market?

Chris Womack: Angie, I think it is what it is. I mean it was intended to move around the partners and participants of excess capacity. And so that’s what it has been doing, I think, has been very successful, but I don’t think it signals anything more than that. I mean that simply is it’s doing what we intended to do with all the participants and so we’ll continue to utilize that. Now, how does it factor into the additional growth? I mean we’ll step back and look at it. But it doesn’t signal anything more than what we intended to be when we made all the filings and got all the approval.

Dan Tucker: Yes Angie, really just to create a more nimble market for those intermittent resources to make sure that customers, wherever it’s needed benefit from that very, very low-cost energy.

Angie Storozynski: And so on a similar vein here, about Southern Towers. I understand that it’s fully contracted for now. And I’m just wondering when do you have some open capacity there, which could potentially benefit from this run up and full with power curves that we’re seeing in other markets? That’s number one. And number two is, so when you hear hyperscalers talk about contracting for supply of power, they do talk about net zero, right? So, I’m wondering, is there a way for Southern Power to, for example, participate in these negotiations, for example, plug into the Mississippi Power Grid, but address the carbon footprint of that supply with building contract-based solar or some other resources that could basically provide the carbon-free offsets?

Dan Tucker: Yes. Look, so I’ll start with the second question first. Look, Southern Power is always going to evaluate opportunities to serve load-serving entities, right? And so to the extent those opportunities present themselves in any of our jurisdictions where it makes sense, we’ll evaluate that. And you’ve seen that happen in the past, particularly in Georgia. On the first question in terms of the kind of the portfolio, yes, look, it’s very highly covered the next five years. And — but if you think about five years out, that’s the end of the decade, that’s when other resource needs begin to emerge. That’s when you start seeing utilities around the Southeast, begin to consider assets be on the ground. So, I think once you start looking towards the end of the decade and into the 2030s, Southern Power will have a lot of opportunity to take advantage of what we’re seeing today.

Angie Storozynski: Great. Thank you.

Chris Womack: Thank you, Angie.

Operator: Our next question comes from Paul Fremont with Ladenburg. Please proceed with your question.

Chris Womack: Hey, Paul.

Paul Fremont: Hey, congrats on Vogtle, great seeing both units and commercial operations. So, great job there. I guess my first question is on HB 1192, if the governor were to sign the bill, would that essentially slow down the addition of data centers in the state of Georgia or put you in a relative — or put your stated at a relative disadvantage to other states?

Chris Womack: And Paul, I think it’s hard to answer that question, but I would think not, but also I think you have to look at the competitive nature of economic development across states. And where does it put Georgia and then what signal does it send. But also, I think it’s about — it’s a big question about resilience and the ability to meet the demands of these customers and not just reliably, but providing them the resilience they expect and the demand. But I think it’s I think just a straight answer to your question, I think it’s probably not, but I think at the same time, it’s a competitive nature of economic development by states that I think you have to say what have to evaluate very closely.

Paul Fremont: And then my other question has to do with sort of the tougher EPA rules. If those ultimately were to be adopted, does that — do you need to accelerate the time frame for coal plant retirements?

Chris Womack: And Paul, that’s like we’re evaluating those rules as we speak today. And I mean, I think there’s a lot we’ve kind of gotten to very quickly on the gas side in terms of capacity factors and the expectations for carbon capture. I mean, I think there’s more work for us to do in terms of the coal implications. But at first blush, like I said, I think they’re in practical and probably yet would make it more difficult to run coal units as well any longer.

Paul Fremont: Great. I think that’s it for me. Thank you.

Chris Womack: Great to hear. Thank you.

Dan Tucker: Thank you, Paul.

Operator: Our next question is from Ryan Levine with Citi. Please proceed with your question.

Ryan Levine: Hi, everybody.

Chris Womack: Hi, Ryan.

Ryan Levine: Hi. What time frame or cadence do you expect some of these data center companies that are shopping multiple jurisdictions to make a decision? And then in terms of in development projects, it looks like there was three pending construction at the time of the stipulated agreement testimony. Have those pending construction data centers started construction? Or any update you could provide on that?

Dan Tucker: I don’t know that we have the specific construction updates, Ryan, but I will tell you just in general, this is — I mean, think of it as a continuous kind of waterfall, right? I mean, there are always data centers coming in and exploring and then committing. And so it’s just — it’s an ongoing thing. So we’ve got — right now, there’s 12 under construction that totaled about 2,400 megawatts.

Ryan Levine: Okay. So that includes one or two that are still pending, okay. And then given that continuous nature to the extent that the momentum were to continue to build. Is there a time frame that you may seek to reengage the updated IRP process? Or any kind of framework you might apply to assess when additional resources may need to be get approval for?

Chris Womack: I think we have simply said before, Georgia has RFP in 2025. And so they’ll factor in new requests, new demands, new load doing that proceeding. Alabama and Mississippi will do make similar decisions in their processes based on the demands and requests that they receive as well.

Dan Tucker: And coming out of this last process, Ryan, there was a part of the stipulation is that Georgia will kind of keep the staff and commission updated a little more — not real time, but on a quarterly basis, leading up to the next formal process that way everyone has line of sight as to what is emerging.

Chris Womack: Because it goes back to some of the points we laid out in the prepared remarks. Is this load real? And so I think that quarterly update helps give the commission and the staff the information they need to give confirmation of the reality of this load.

Dan Tucker: And that next regular filing is scheduled for next January, January of 2026 or 2025, rather.

Ryan Levine: And then last question for me. In terms of the customer preference for carbon resources, any stipulations or any requirements that they’re speaking to specifically as they’re looking to decide what locations to locate their data centers?

Chris Womack: I mean early on, we saw a lot of requests for 24/7 carbon-free of late. We see the request for do you have power. And like I said, we continue to build additional carbon-free resources. And so we’ll continue to work with them. But right now, I think there is just a simple desire and request for resources for energy.

Dan Tucker: And we’re very transparent about our own transition plans. And I think that is an opportunity for them to latch on to transitioning along with us.

Ryan Levine: Great. Thanks for taking my question.

Operator: Our next question comes from Travis Miller with Morningstar. Please proceed with your question.

Travis Miller: Good afternoon. Also congrats on Vogtle and I thought it was a very good choice of words arduous in your prepared remarks. I appreciate that.

Chris Womack: We chose that word very carefully.

Travis Miller: I figured. On the load forecast and specifically even the George IRP, what does that mean for T&D investment? Is there upside there in addition to the generation upside you talked about?

Dan Tucker: Yeah. And so if you remember, Travis, part of our year-end update on the capital plan, I mean, it totaled $5 billion of increased capital. There was a big piece of that, that was also transmission, and that will continue to be part of the long-term planning discussions we have with our states. Absolutely, as we add new resources, transmission considerations have to take place, absolutely as our fleet transitions from its current state to its future state, transmission considerations are part of that. So they will clearly be transmission opportunities along the way here.

Chris Womack: And I’ll also add there’s got to be some additional build-out of gas infrastructure as well. I mean, so there’s a lot more infrastructure that’s got to be built to support the generation resources to meet this demand.

Travis Miller: Yeah. Sure. Okay. And then can you remind us the Alabama and Mississippi IRP schedules? And then in addition to that, would you expect some similar issues to come up as what came up in Georgia in those states? Or is there something different going on there?

Dan Tucker: Yeah. We don’t want to get too far ahead of exactly what it will look like in terms of if there’s suddenly this accelerated load. But so the next scheduled processes. We got Mississippi, we’ll launch a process and — or they launched the process in April rather they’re going through that now and Alabama will have one next spring 2025.

Travis Miller: Okay. Perfect. Thanks so much. Appreciate it.

Dan Tucker: You bet.

Operator: And that concludes today’s question-and-answer session. Sir, are there any closing remarks?

Chris Womack: I think it’s — let me call by saying this. Understandably, I mean, Vogtle 3 4, the journey that that we’ve been through, took a lot of attention from our stakeholders and have met fewer conversations focused on our underlying business and the success of our underlying business. The fact is all along, we continue to execute at a very high level across our portfolio and delivered strong results. Reliability and customer service were outstanding. Investments in critical financial structure we made in every jurisdiction. We successfully navigated our regulatory processes and received constructive outcomes. Now, as we look ahead in what’s next, it’s this, a continued unrelenting focus on the fundamentals with customers at the center of everything that we do.

Serving the growing load we’re experiencing is what we were built for and our model is designed to turn that growth into value for all stakeholders, customers and investors alike. That is what the employees of Southern companies do. It might sound boring to some, but it’s exciting for us. Thank you for spending time with us today. And operator, that’s the end of this call. Thank you very much.

Operator: Thank you, sir. Ladies and gentlemen, this concludes the Southern Company first quarter 2024 earnings call. You may now disconnect. Thank you.