The Southern Company

Good afternoon. My name is Rita and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company second 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. As a reminder, this conference is being recorded Thursday, July 29th, 2021. I would now like to turn the call over to Mr. Scott Gammill, Investor Relations Director. Please go ahead, sir.

Thank you, Rita. Good afternoon and welcome to Southern Company's second 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 that we'll be making forward-looking statements today in addition to providing historical information. Various important factors could cause extra 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.

Thank you, Scott. Good afternoon, and thank you all for joining us today. Drew and I will cover our usual business updates in a few moments, but first let me provide an update on Vogel Units 3 and 4. Unit 3, Hot Functional Testing, is complete. Through testing, we have validated the operation of critical primary and secondary systems at full temperature and pressure and demonstrated that the design basis is sound. The completion of hot functional testing marks the last major milestone before fuel load and represents a significant step towards placing Unit 3 in service. Though the duration of hot functional testing was longer than we originally anticipated, we remain committed to getting it right for all aspects of the project. Taking into account the length of hot functional testing for Unit 3, the remaining activities for both units, and recent productivity trends, we now project placing Unit 3 in service during the second quarter of 2022 and Unit 4 in service during the first quarter of 2023. From a cost perspective, Georgia Power's share of the total project capital cost forecast increased by $460 million, largely driven by our updated schedule, recent productivity trends, and replenishment of contingency to fund expected future risks. As a result, Georgia Power recorded an after-tax charge of $343 million during the second quarter. With Unit 3 hot functional testing complete, our next and final major milestone for Unit 3 is fuel load. We project fuel load to occur sometime near year-end 2021 or early in 2022. As we approach fuel load, our commitment to get it right remains our top priority. As the operator of these units, safety is our paramount objective, and we strive to meet first-time quality standards prior to significant testing and operations activities. We will not sacrifice those commitments to meet schedule or milestone dates. The scope and time required for the work remaining prior to fuel load includes, one, completion of the nuclear fuel systems and the associated documentation, or paper as I've referred to it in the past. Two, completion of remediation work and additional work identified during hot functional testing. Three, completion of the work necessary to implement our plant support systems. And four, a reduction in productivity levels consistent with recent site performance. The Unit 3 ITAC submittal and review process is ongoing and continues to follow our construction and testing activities on site. To date, 208 ITAC have been submitted to the NRC. We will submit the remaining 191 as we approach fuel load. Recently, the Nuclear Regulatory Commission conducted a special inspection of electrical quality issues that we had identified earlier this year. and the remediation efforts that are underway. The onsite inspection is complete, and we expect the NRC's report to be published within a couple of months, though that exact timing will of course be determined by the NRC. Turning to Unit 4, direct construction is now approximately 84% complete, and we achieved initial energization in May. Our revised construction productivity assumptions are consistent with recent trends, and, as I mentioned, we now project an in-service date during the first quarter of 2023 for Unit 4. Our updated timeline for Unit 4 is reflective of several factors. First, Unit 4 has experienced a slower-than-expected recovery from our COVID-19-related staffing reductions in early 2020. Recall at the time the staffing reduction disproportionately impacted Unit 4 as we shifted our focus to Unit 3 critical path work fronts. Recall we reduced the density of personnel on the site and effectively moved people from Unit 4 to Unit 3. Second, Unit 3's timeline leading up to and during hot functional testing delayed our plans to transition resources to Unit 4. More recently, we have staffed Unit 4 independently as work on Unit 3 continues. And third, over the past three months, the growing economy and demand for skilled labor has impacted our ability to attract and retain electricians. And as a result, we experienced higher than expected attrition. Attaining the necessary levels of craft labor to meet construction milestones for Unit 4 has been more challenging than expected. In recent weeks, we have seen positive staffing trends, driven in part by offering the enhanced electrician compensation, which has helped to mitigate further schedule impacts. Construction completion for Unit 4 has averaged 1.4% per month since the start of this year. To achieve a November 2022 in-service, we estimate Unit 4 would need to average 1.9% construction completion per month. And to support a first quarter 2023 in-service, Unit 4 would need to average construction completion of approximately 1.3% per month for the rest of this year. Looking now at costs, the $460 million pre-tax charge recorded during the second quarter reflects the schedule updates for both units, including updated assumptions for construction activity and support resources, as well as replenishing the contingency for potential cost risks associated with completing both units. In conclusion, While the timing of Unit 3 hot functional testing took longer than originally expected, I am encouraged by the success of the test. Even so, with completion of this enormous milestone, we still have a lot of important work ahead of us to get to fuel load. For Unit 4, we are focused on progressing through the next several milestones while continuing to navigate through the COVID-19 pandemic, and broader economic recovery efforts that have impacted productivity at both sites. As a company and a management team, we remain focused on bringing Vogel Units 3 and 4 safely online to provide Georgia with a reliable, carbon-free energy resource for the next 60 to 80 years. As always, I want to thank our employees, contractors, co-owners, and community partners for their unwavering dedication to this important statewide project. Drew, I'll turn it over to you now for an update on the financials.