The Southern Company

Good afternoon. My name is Demitra and I'll be your conference operator today. At this time, I would like to welcome everyone to the Southern Company first quarter 2021 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, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Thursday, April 29th, 2021. I would now like to turn the conference over to Scott Gamble, Investor Relations Director. Please go ahead, sir.

Scott Gamble Thank you, Demetria. Good afternoon, and welcome to Southern Company's first quarter 2021 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-Q, 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.

Well, good afternoon, and thank you all for joining us. As you can see from the materials we released this morning, we reported a strong start to the year with adjusted earnings per share for the first quarter of 2021 ahead of our estimates. The economies in our service territories are starting to recover from the COVID-19 pandemic. And though customer demand remains mildly lower than pre-pandemic levels, during the first quarter, it exceeded our expectation. Importantly, many of the programs we implemented to keep customers connected during the pandemic have proven to be very effective. We have reliably provided energy to our customers, and facilitated alternative payment arrangements for those in need. I continue to be proud of our employees and the ways we have partnered with our communities throughout this pandemic. This past February, parts of our nation were contending with the effects of devastating winter weather that crippled generating units and power grids in Texas and beyond. At Southern Company, each of our businesses, including those with operations in Texas and the Southwest region, performed well during this event. Our regulated electric and gas utilities did not experience any operational issues or related service disruptions. Southern Power was minimally impacted due to its highly contracted business model. Our wholesale gas services subsidiary, Sequin Energy, effectively served customers in need, utilizing in large part natural gas held in storage. And microgrids provided by PowerSecure had a 98 runtime reliability, producing over 2,260 megawatt hours of reliable energy for customers during the storm. The winter season's atypical temperatures have also caused utilities across the country to evaluate their own system resilience under similar conditions. For Southern Company, our vertically integrated structure and integrated resource planning processes we utilize across our southeast electric utilities have been official for years in allowing us, along with our regulators, to carefully consider, plan for, and invest in infrastructure needed to address a range of extreme circumstances and improve resilience. We will continue to leverage the rigorous analysis and stakeholder input provided by these proceedings as we evaluate the potential for additional system enhancements across our footprint. Let's turn now to an update on Plant Vogel Units 3 and 4. Unit 3 hot functional testing started on April 25th. marking the last milestone in a series of major tests. Hot functional testing is conducted to verify the successful operation of reactor components and systems together and to confirm that the reactor is ready for fuel load. As part of the testing, the site team will run Unit 3 plant systems without nuclear fuel and advance through the testing process to reach normal operating pressure and temperature. Starting hot functional testing represents a significant step towards the operation of Unit 3 and ultimately providing customers with a reliable carbon-free energy source for the next 60 to 80 years. The site's work plan now targets fuel load in the third quarter and late December 2021 in-service day for Unit 3. Of course, any delays. could result in a first quarter 2022 unit three in service state. Now, as we have stated in prior calls, an important step in the system turnover process is to assure that the as-built state of the plant aligns with the design basis and to resolve any differences. Before we close systems, declare them ready for testing, and submit ITACs, we are committed to the notion of getting it right. In recent months, Southern Nuclear identified certain construction remediation work, primarily electrical in nature, that was necessary to ensure the quality and design standards were met prior to the start of hot functional testing. We reviewed the project's construction quality programs prior to hot functional testing. We implemented improvement plans And we believe Southern Nuclear's construction quality program is effective. Furthermore, the improvement plans we are implementing are designed to help drive successful completion of Unit 3 and improve performance for Unit 4. As the operator of these units, we are committed to getting it right, striving to ensure our safety and quality standards are met prior to significant testing and operations activities. we will not sacrifice that commitment to meet schedule or milestone dates. With Unit 3 direct construction nearing completion and hot functional testing in progress, our primary system focus include going forward, one, successful completion of hot functional testing, two, completion of the remaining construction system turnovers and testing leading to fuel load, And three, an orderly transition from fuel load to an efficient startup of the unit. The ITAC submittal and review process is expected to accelerate as we move into and beyond the hot functional test sequence. To date, 188 ITAC have been submitted to the NRC. We will submit the remaining 211 during hot functional testing as we approach fuel load. Turning to Unit 4, direct construction is now approximately 80% complete, and the current site work plan targets completion in the third quarter of 2022, which would provide margin to the regulatory approved November 22 in service date. Earlier this week, the site team placed the water tank on top of the Unit 4 containment vessel and shield building roof, representing the last major crane lift at the project site. Integrated flush is in progress and initial energization is expected in the coming weeks. The site is focused on increasing craft labor resources and electrical productivity. We will continue adding incremental resources while also shifting resources from Unit 3 to Unit 4, which is expected to increase our current pace of construction completion. Construction completion has averaged 1.5% per month since the start of the year. In order to achieve the November 22 regulatory and approved in-service date, we estimate we would need to average construction completion of approximately 2% per month through the end of this year. And as a reference point, Unit 3 averaged approximately 2% during the second half of 2019 and through the first half of 2020, which did include periods heavily impacted by COVID-19. Looking now at cost during the first quarter, Georgia Power allocated $84 million of contingency into the base capital forecast related to extending the schedule for Unit 3, performing construction remediation work, and increasing support resources across both units. As a result, Georgia Power replenished its contingency by $48 million, recording an after-tax charge of $36 million at the end of the first quarter. While there was contingency remaining prior to this increase, we believe providing this additional amount of contingency is appropriate when considering the extended time necessary to reach the start of Unit 3 hot functional testing, and the potential cost risk remaining as we complete both units. The major risks that remain to our cost estimate are similar to those for schedule. Namely, one, our ability to increase earned hours and improve productivity, or CPI, at Unit 4, successful completion of the Unit 3 hot functional testing, and three, completion of the system turnovers and subsequent testing, leading to the Unit 3 fuel load. You know, notably at this time last year, the onset of COVID-19 led to many uncertainties at the project site. The site team has responded in exemplary fashion, maintaining safety and progress toward completion of both units during what has been an unprecedented year. With effective COVID protocols in place and now the broader availability of vaccines, the impact on the site has decreased in recent months as active cases and isolation rates are trending significantly lower. We are very pleased that Unit 3 hot functional testing is underway. We've consistently said that both the commencement and successful completion of this testing sequence will reduce risk for the project. And as always, I want to thank our employees, contractors, co-owners, and community partners for their unwavering dedication to this important project. Drew, I'll turn it over to you now for an update on the financials.