The Southern Company

Good morning, my name is Nelson and I will be your conference operator today. At this time, I would like to welcome everyone to Southern Company's first quarter 2020 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. At that time, if you have a question, you may press the one followed by the four on your telephone. If you reach an operator at any time, you may press the star followed by the zero on your telephone keypad. Please note today's call is being recorded Thursday, April 30th, 2020. I will now turn the call over to Mr. Scott Gamble, Investor Relations Director. Please go ahead, sir.

Thank you, Nelson. Good afternoon and welcome to Southern Company's first quarter 2020 earnings call. Joining me today are Tom Fanning, Chairman, President, and Chief Executive Officer of Southern Company, and Drew Evans, 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-Qs, and subsequent filings. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning. as well as the slides for this conference call, which are both available on our investor relations website at investor.southerncompany.com. At this time, I'll turn the call over to Tom Fanning.

Good afternoon, and thank you all for joining us. I hope that you're well. As you can see from the materials we released this morning, we reported strong adjusted results for the first quarter ahead of our estimate. This solid start to the year positions us well as we look to overcome challenges short-term sales impacts from the coronavirus. Drew will provide you with more detail on our financials momentarily, so I will go ahead and turn to our current operating environment amid the coronavirus pandemic. At Southern Company, our top priority remains keeping every employee healthy and safe while we continue to provide clean, safe, reliable, and affordable energy for our customers. we were well prepared to quickly make necessary adjustments across our business, activating incident response teams throughout the company in February. We continue to execute COVID-19 pandemic plans for our business, and to date, our operational performance has been exceptional. We have not experienced nor do we currently foresee supply chain disruptions for our utilities or our construction projects. We often talk about the importance of the reliability and resiliency of our electric and natural gas infrastructure, which has delivered remarkably well during this time. In face of COVID-19, our biggest asset has really been the reliability and resiliency of our workforce. I want to thank our employees who have risen to every challenge. We have been resourceful in rapidly procuring and deploying necessary protective equipment, and implementing effective protocols to safeguard against the virus. Our operations and customer service teams have continued to work around the clock. We are finding solutions to effectively work in teams remotely, and we are communicating with our workforce and external stakeholders in a whole new way. We've implemented a wide range of projects to support the physical, financial, and emotional well-being of our employees during this time as they continue their superb work to support the operations of our company. It is also a hallmark of our company to be a citizen wherever we serve, so we have worked to identify how we can best assist our communities during these difficult times. Southern and its subsidiaries are targeting a commitment of nearly $10 million in foundation and charitable contributions. and our employees have logged thousands of volunteer hours to assist those impacted by the coronavirus pandemic. I expect we will do even more in the coming months. Let's turn now to an update on Plan Vogel Units 3 and 4. We remain focused on meeting the November 21 and November 2022 regulatory approved in-service dates, and we continue to maintain an aggressive work plan onsite as a tool to help position us to meet those dates. Recall in February, we refined the aggressive site work plan to reflect a May 2021 completion target for Unit 3 and a March 2022 completion target for Unit 4. We also laid out a November benchmark schedule and related milestones for Unit 3. Through March, production for Unit 3 was generally consistent with the refined aggressive site work plan. April's performance was challenged due to COVID-19 impacts, which put us slightly behind the aggressive site work plan. Despite these challenges, today, direct construction is approximately 90% complete. And notably, just late breaking news, We have just completed open vessel testing. That came in about 1 p.m. today. We also reached several interim construction milestones for Unit 4 during the quarter, including the installation of the polar crane and setting the containment vessel top head. Before giving an update on recent productivity, I want to highlight our commitment to the safety of our workforce onsite and the surrounding community. Since the beginning of the pandemic, we have taken a number of proactive measures intended to protect our workforce and the community against the spread of COVID-19. As we implement these measures, we've engaged independent medical advisors to guide our actions to reduce the possible spread of the virus. Among other measures, we have provided additional protective equipment, enhanced sanitation practices, and implemented social distancing strategies such as spreading out and increasing common areas, eliminating group transportation at the site, and mandating those who can telework to do so. Beyond these basics, early on, our protocol on-site ensured that anyone tested and their close contacts were promptly self-isolated off-site. We acted quickly to build an on-site medical clinic designed to expedite test results, minimize turnaround time for close proximity screening, and improve facilitation of clearing personnel to return to work. Throughout this time, we have remained in close consultation with the Nuclear Regulatory Commission and the project's co-owners, as well as local and state authorities. we are also consulting with and monitoring other mega projects. Notably last month, the president of the North American Building Trade Unions commended Southern Company for going above and beyond the call of duty to keep their members on the Vogel construction site safe and healthy. Now turning to our recent progress. Although overall monthly production through March was largely consistent with the refined aggressive site work plan, Mechanical, electrical, and subcontract activities began to build a backlog to Unit 3's aggressive site work plan at the end of March. That trend was exacerbated through April as we began experiencing impacts across the site related to the coronavirus pandemic, including an increase in workforce absenteeism. Two weeks ago, in an effort to mitigate the impact of COVID-19, we announced our intent to reduce density on the site and take workforce down by 20%. As we work through this transition, we expect to see a decrease in near-term production similar to the sawtooth effects that we have experienced in the past. The longer-term objective is to gain operational efficiencies and productivity by reducing workforce fatigue and absenteeism. As we move ahead, we will continue to evaluate the effectiveness of our streamlined workforce. As you know, we regularly evaluate both cost and schedule, and we have factored recent developments into our ongoing analysis. Looking first at schedule, we are prioritizing key work fronts on Unit 3 and continue to work towards the aggressive site work plan targets, some of which have been pushed back slightly in light of recent events. The next major milestone for Unit 3 is the start of cold hydro testing, which is currently planned to occur in the June to July timeframe. Considering our expected timing on the start of cold hydro testing, we expect Unit 3 hot functional testing to commence in the August to September timeframe. On the assumption that we are able to stabilize and increase productivity to pre-pandemic levels, we are maintaining the aggressive site work plan target of year-end for Unit 3 fuel load. As a reminder, construction completion of about 2% per month is consistent with the aggressive site work plan. Taking into account our performance to date, we now project that we need to complete approximately 1% per month to meet the November benchmark schedule. Now, this is slightly down from the 1.3% we discussed last quarter. Importantly, even amid the outbreak of the pandemic, for April, our construction completion rate was about 1.25%, which supports meeting the November 2021 regulatory approved in-service date. Critical areas of focus remain electrical and subcontract performance. Lastly, Consistent with the prioritization of Unit 3 and related staffing, we have shifted the target completion date on the aggressive site work plan for Unit 4 back to May 2022, which still provides six months of margin to the regulatory-approved in-service date. Recall, under the refined aggressive site work plan we laid out in February, we accelerated the target completion date for Unit 4 by two months to March, So the current action takes us back to the prior date of May 2022. Turning now to cost. Based on our most recent assessment, there is no change in the total project capital cost forecast. In the first quarter of 2020, Georgia Power allocated an additional $66 million of its project contingency, reflecting cost risks associated with construction productivity, field support, subcontracts, and procurement, as well as the impacts of the April 2020 reduction in workforce. Recall the estimated cost of time between the aggressive site work plan and the regulatory-approved November in-service dates, or a scheduled cost margin, is embedded in Georgia Power's base capital forecast. With this quarter's contingency allocations, the scheduled cost margin and the remaining cost contingency combined continue to represent approximately 20% of the remaining estimated cost to complete. As we have said, we expect to utilize the entirety of the contingency funds as we progress toward the completion of the project. The team at Vogel Units 3 and 4 have worked incredibly hard to create an environment at the site that has led to meaningful progress over the past few months, even while managing through this unprecedented pandemic. The next few months will be pivotal as we adjust to a smaller, more streamlined workforce and seek to improve productivity. The safety of our workforce and the surrounding community remains paramount, and we will continue to guide our decision-making at the site. Importantly, we still expect to meet the November regulatory approved in-service dates for both Units 3 and 4. Drew, I'll turn it over now to you for an update on our financials and our outlook.