The Southern Company

Good afternoon. My name is Pema, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Southern Company third quarter 2020 earnings call. All lines have been muted 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, press the 1 followed by the 4 on your telephone. If at any time during this conference you need to reach an operator, press star zero. As a reminder, this conference is being recorded Thursday, October 29th, 2020. I would now like to turn the call over to Scott Gemmell, Investor Relations Director. Please go ahead, sir.

Thank you, Pema. Good afternoon and welcome to Southern Company's third 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 provide 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 Thaney.

Thanks, Scott. Good afternoon, and thank you all for joining us. As you can see from the materials we released this morning, we reported strong adjusted results for the third quarter ahead of the estimate provided on our last conference call. COVID-19-related demand impacts have moderated from the levels we experienced earlier this year, and given results through September, we expect adjusted full-year earnings per share to be at the top end of our guidance range. Throughout 2020, our customers and communities have been faced with historic challenges, and our businesses have continued to demonstrate resilience in serving and supporting them. While COVID-19 has resulted in many employees working from home, nearly half of our employees staff essential facilities and perform essential functions, which means they have been in the field. And in the case of our gas employees in homes and in businesses, working daily to ensure the delivery of clean, safe, reliable, and affordable energy to our customers. Safety and health protocols have never been more important to protect both our employees and our customers. Despite extraordinary circumstances in 2020 as a result of the COVID-19 pandemic and an exceedingly busy storm season, our business model has demonstrated substantial resilience as we've delivered outstanding service to customers, provided excellent operational reliability, and achieved strong year-to-date financial performance. As we reach completion of Vogel Unit 3 and continue significant progress on Unit 4, we will set the foundation for an expected increase of our long-term earnings per share growth rate and improvement of our cash flow and a dramatically improving dividend payout ratio. Let's turn now to an update on Plant Vogel Units 3 and 4. We continue to focus on meeting the November 2021 and November 2022 regulatory approved in-service dates and recently updated our work plan for the timing of Unit 3's remaining major milestones. Based on our current work plan, we now expect that the in-service date for Unit 3 should be during the third quarter of 2021 ahead of its November 2021 regulatory-approved in-service date. Now, we continue to utilize an aggressive site work plan for Unit 4 as a tool to provide margin to its regulatory-approved in-service date of November 2022 with a current targeted in-service date of June 2022. From a cost perspective, Georgia Power's share of the total project capital cost forecast is unchanged at $8.5 billion. With Unit 3 direct construction approximately 94% complete, our expectations around the scheduled ranges for reaching major milestones continues to narrow. For about three years, and as we have discussed on prior earnings calls, we have used an aggressive on-site work plan to drive productivity and as a tool to provide margin to the November regulatory approved in-service date for Unit 3. Now, this strategy has served us well in motivating the workforce, advancing construction progress, providing for early testing of systems and components, and facilitating earlier identification and mitigation of risks. Indeed, this tool has created margin to the November regulatory approved in-service date. Considering the current pace of construction and milestones reached to date, as well as assumptions for future productivity, we are shifting away from the use of an aggressive site work plan for Unit 3 Two, a work plan that reflects our current expectations. Under this updated work plan, we anticipate our next major milestone, hot functional testing, to start in January 2021, followed by fuel load in April of 2021. That work plan projects in service as early as the third quarter of 2021. which provides approximately two to three months of margin to the November regulatory approved in-service date. It is important to remember that for Unit 3, we expect hot functional testing could start as late as the end of March of 2021 and fuel load could occur as late as mid-year of 2021 and still support the November regulatory approved in-service date. In mid-October, we successfully completed cold hydro testing for Unit 3, which was a major milestone for the project. Since our last call, we also completed civil construction on Unit 3's shield building, started to successfully operate the Unit 3 reactor coolant pumps for the first time, and placed the Unit 3 turbine on its turning gear. As the site prepares for its next major milestone, hot functional testing, critical areas of focus remain the timing of system turnovers, and electrical and subcontractor performance. While the site is experienced and managed through two waves of COVID-19, we expect the pandemic will present continued challenges as we work towards completion. As we approach hot functional testing, system turnover and testing activities for Unit 3 continue to increase, and in the coming months, we expect ITAC submittal and review to accelerate. Southern Nuclear and the NRC staff have been working together for years on a plan that provides Southern Nuclear the ability to submit the necessary documentation and allows the NRC ample time to conduct a review of that documentation prior to Unit 3 fuel load. all of the UINs, or the uncompleted ITAC notifications, have been submitted and accepted by the NRC for both Units 3 and 4. And nearly 40% of the 399 ITAC closure notifications, we call these ICNs, have been verified as complete by the NRC for Unit 3. At this point, ITAC progress is consistent with our expectations and milestone achievements. Leading up to hot functional testing, we plan to submit over 100 ITACs for review and verification to the NRC, followed by approximately 100 more during hot functional testing and approximately 50 more as we approach to fuel loads. We expect that all Unit 3 ITAC ICNs will be submitted and reviewed in a timely fashion to support Unit 3 fuel load. The Vogel 3 and 4 operations team continues in preparation for initial fuel receipt later this year and an increase in pre-operational testing. The team successfully completed the pre-startup safety review and by the World Association of Nuclear Operators, highlighting the strong safety culture we have developed to position the project for successful startup and operation. We also completed the NRC-evaluated emergency preparedness exercise and received 62 reactor and senior reactor operator licenses, the first operator licenses for Units 3 and 4. This number represents full staffing for both units. These accomplishments set the stage for the site to achieve approval for Unit 3 fuel load. Now let's turn to cost. Based on our most recent assessment, there is no change in the total project capital cost forecast. In the third quarter of 2020, Georgia Power allocated approximately $5 million of the construction contingency to the base capital forecast, reflecting cost risks associated with construction productivity and field support. Now recall the estimated cost of the time between the site work plans and the regulatory approved November in-service dates, or a scheduled cost margin, is embedded in Georgia Power's base capital forecast. Following the update to Unit 3 and Unit 4 site work plans, approximately $90 million of this scheduled cost margin was utilized. The remaining scheduled cost margin and cost contingency combined represent approximately 18% of the remaining estimated cost to complete. As we have said, we expect to utilize all contingency funds as we progress towards completion of the project. Through the remainder of this year and into the first quarter of 2021, the Vogel team will continue to focus on the final phases of Unit 3 construction, system turnover and testing activities, ITAC submittals, and our transition into plant operations ahead of Unit 3's regulatory approved and service date. At the same time, A ramp up in construction production is underway for Unit 4 related to its major milestones in 2021. While there is still uncertainty, our current expectation is that we will reach completion for Unit 3 ahead of the November 2021 regulatory approved in service date. Drew, I'll turn it over to you now for an update on the financials and our outlook.