Southern Company (The)

Good afternoon. My name is Malika, and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company fourth quarter 2023 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 February 15, 2024. I would now like to turn the conference over to Mr. Scott Gemmell, Vice President, Investor Relations, and Treasurer. Please go ahead, sir.

Thank you, Malika. Good afternoon and welcome to Southern Company's fourth quarter 2023 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 and subsequent securities 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 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.

Thank you, Scott. Good afternoon, and thank you for joining us today. 2023 was an exceptional year for Southern Company, a year in which we proved once again that we can do extraordinary things, including delivering strong financial results in the face of unprecedented headwinds and the successful completion of of Plant Vogel Unit 3, the first newly constructed nuclear unit in the United States in over three decades. Since its July 30th in-service date, Unit 3's performance has exceeded our expectations, delivering over 5 million megawatt hours of safe, reliable, carbon-free energy across Georgia. Other noteworthy items for 2023 included Constructive resolution of the Vogel 3 and 4 prudence process, resolving all issues of reasonableness, prudence, and cost recovery. Successfully completed construction and commissioning for a brand new 720 megawatt combined cycle plant on schedule and on time at Alabama Power's Plant Berry. Acquired two new solar projects at Southern Power. which once construction is complete, will add an additional 350 megawatts of carbon-free generation to its portfolio of fully contracted renewable generation. Continued progress toward our greenhouse gas emission reduction goals, including our interim goal of a 50% reduction versus 2007 levels by 2030, achieving a 49% reduction in 2023. earned the National Accounts Award for Outstanding Customer Engagement by the Edison Electric Institute and top honors from J.D. Power for residential and business customer satisfaction. And just last week, Southern Company was ranked as the number one most admired electric and gas utility in Fortune Magazine's World's Most Admired Companies list for 2024. These achievements reflect our team's steadfast commitment to keep the customers and the communities we are privileged to serve at the center of everything we do. Throughout 2023, our electric and gas franchises continued to excel at the fundamentals and started this year strong as evidenced through our preparations and execution during January's winter storm, Heather. When electricity demands reached all-time winter peaks, and Southern Company Gas' system continue reliably serving customers throughout severe weather conditions across its four state territory. Our ability to navigate through such severe weather events further demonstrates how our customers benefit from the combination of outstanding operational performance by each of our utilities and the value of our vertically integrated state regulated business model. Our state's long-term integrated planning processes which include adoption of important planning assumptions like a 26% winter reserve margin for our electric utilities, benefit our customers by providing a reliable and resilient mix of energy resources. Before turning the call over to Dan for a financial update, I'd like to provide an update on Vogel Unit 4. We continue to make meaningful progress toward the completion of Unit 4 with initial criticality achieved yesterday. Initial criticality represents a key step during startup, whereby operators for the first time safely begin the self-sustaining nuclear reaction to create heat for steam production. As we approach the initial sync with the grid, Unit 4 continues with the remaining startup and pre-operational testing activities that precede the declaration of end service, which is projected in the second quarter of 2024. Our 2024 adjusted earnings per share guidance range, which Dan will get to shortly, assumes Unit 4 achieves commercial operation in April. Dan, I'll now turn the call over to you.

Thanks, Chris, and good afternoon, everyone. As you can see from the materials we released this morning, we reported strong adjusted earnings per share of $3.65. for 2023, which was the very top of our 2023 guidance range. The primary drivers of our performance compared to 2022 are higher utility revenues and lower non-fuel O&M expenses and income taxes, somewhat offset by higher depreciation and interest expenses. Mild weather was also a significant headwind, with 2023 marking the mildest year in our history for our electric service territories. Our ability to deliver 2023 adjusted results at the very top of guidance is a great testament to our team and to the resilience and strength of our portfolio of companies. A detailed reconciliation of our reported and adjusted results compared back to 2022 is included in today's release and earnings package. Turning now to electricity sales in the economy. Weather-adjusted retail electric sales were down 0.4% for 2023 compared to 2022. Strong usage drove commercial sales growth of 1.3% for the year, which was partially offset by lower residential usage with both commercial and residential sales impacted by the return to the office dynamic. We continue to see robust residential customer growth with the addition of over 46,000 residential electric customers and nearly 27,000 residential gas customers. Since 2020, we've added over 200,000 residential electric customers, which represents the highest four-year total in decades. Industrial sales finished down for the year nearly 2%, largely due to continued slowing in housing and construction-related sectors, as well as lower sales to chemical companies due to outages, and long-planned plant closures. Consistent with the drivers detailed in Georgia Power's recently filed 2023 Integrated Resource Plan update, economic development in our southeast service territory remains incredibly strong. Several years of extraordinary success in attracting new and expanding businesses to our states underpins our long-term electricity sales forecast. While electricity sales growth is projected to remain around 1% to 2% for 2024 and 2025, growth from 2025 to 2028 is projected to accelerate to an average of approximately 6% annually, with Georgia Power's total retail electric sales growth projected to be approximately 9% annually over this same period. The magnitude and velocity of this growth are significant drivers for the increased capital investments reflected in our current outlook. This projected growth also represents a tremendous opportunity to de-risk our outlook and benefit customers as the substantial projected growth in kilowatt-hour sales from new manufacturing facilities and data centers has the potential to put downward pressure on existing customers' rates. Turning now to our earnings projections for 2024 and beyond, our adjusted earnings per share guidance range for 2024 is $3.95 to $4.05, and our projected long-term adjusted EPS growth rate is 5% to 7% from that range. In early 2021, we provided the investment community with a stable post-Vogel III and IV construction EPS projection with an initial and reasonably wide 2024 guidance range is perhaps the greatest of understatements to say that the world has changed a lot since early 2021. On a macro basis, we've seen significant inflation and higher and then higher for longer interest rates, which alone has translated to interest expense for 2024 hundreds of millions of dollars higher than any of us assumed three years ago. Additionally, relative to our projection in early 2021, the projected in-service date for Vogel IV moved into 2024 from 2023. In the face of these challenges, we've continued to work extremely hard to grow our business and to create value for investors. Compared to our projections in early 2021, our state regulated utility rate base for 2024 is projected to be approximately $6 billion higher. while lower O&M expenses and higher sales are projected to contribute hundreds of millions of dollars more than previously projected to help maintain affordability and help pay for those investments. We estimated adjusted earnings of 90 cents per share for the first quarter of 2024. Our capital investment plan continues to be well over 95 percent attributable to our state regulated utility businesses. The current five-year capital investment forecast totaling $48 billion reflects a $5 billion increase in state regulated utility investments relative to our forecast a year ago. This 12% increase in capital spending reflects our ongoing efforts to further increase the resiliency of our electric and gas networks and our technology infrastructure. It also partially reflects new resources proposed in Georgia Power's 2023 IRP update, about 60% of the brick and mortar megawatts proposed. We have maintained our disciplined, measured approach to capital forecasting for our state regulated utility businesses. Given the magnitude of change in our projected sales growth and the timeframe in which new resources are needed to serve higher peak demands, we felt it was appropriate to go ahead and reflect certain new resources in our capital plan. Additionally, our capital investment forecasts tend to grow, especially in the later years, as the visibility into customer additions improves, regulatory processes unfold, compliance obligations evolve, and our long-term integrated system planning is refined. While the increases in this year's five-year forecast represent an outsized upward adjustment due to the scale and velocity of the projected growth in the near term, we do believe it's reasonable to expect a historical trend of capital increases to continue going forward. On its own, our capital investment forecast of $48 billion supports annualized state-regulated rate-based growth of approximately 6%. providing a solid foundation for our long-term outlook. Any upsides to the capital forecast will simply serve to add durability to an already strong outlook. Strong investment-grade credit ratings remain a priority. We continue to believe that in order to be a high-quality equity investment, a company must also have high-quality credit. As we near completion of Vogel Unit 4, the reduction in major project construction risk and the improvement in our FFO should strengthen and meaningfully improve our credit profile. To help ensure we preserve what we believe will be a positively differentiated profile, we are also turning on our internal equity plans to fund the incremental capital investment at our subsidiaries that I highlighted earlier. These plans typically provide approximately $350 million of new equity annually. Additionally, we'll preserve our financing flexibility and optionality with a continuous focus on preserving and improving shareholder value. For example, we will continue to maintain an at-the-market or ATM plan to partially finance potential additional increases in capital spending on our subsidiaries or potentially to partially refinance callable hybrid securities if we determine doing so preserves or improves our credit and long-term EPS objectives. Southern Company strives to deliver a superior risk-adjusted total shareholder return, and we believe the plan that we've laid out supports that objective. Our customer and community-focused business model, the growing investments in our premier state regulated utility franchises, and the priority that we place on strong credit quality and our remarkable dividend history all contributes toward making Southern Company a premier investment. Chris, I'll now turn the call back over to you.

Thank you, Dan. Again, let me say, Southern Company had an exceptional year in 2023. We didn't just meet challenges head on. We rose above them while remaining committed to keeping customers and communities in the center of everything that we do. I am extraordinarily proud of the hard work, the collaboration, the perseverance, and the leadership that our team showed throughout the year to enable us to achieve these outstanding results. Having a team prepared to rise to such new heights doesn't just happen. For decades, Southern Company has prioritized investing in our people with a focus on positioning our leaders and their teams to provide the exceptional service customers expect to deliver the innovative solutions needed and an evolving energy landscape and to support growing the communities we are privileged to serve. As you all know, our company implemented a leadership transition in early 2023. Rather than simply fill a handful of vacant seats, we embraced it as a grand opportunity. During 2023, we facilitated 75 officer level changes throughout the company. The changes brought renewed energy and excitement, and more importantly and intentionally, the move served to further strengthen what we believe to be the deepest and best bench in the industry. I'm excited about the future of this company, and I'm excited about our team and its ability to deliver the results all our stakeholders, customers, and investors alike expect from Southern Company. Thank you again for joining us this afternoon. and for your continued interest in Southern Company. Operator, we are now ready to take questions.

Thank you. Ladies and gentlemen on the phone lines, if you would like to register for a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. Once again, as a reminder, you can press 1-4 to ask a question. One moment, please. Our first phone question is from the line of Char Oreza with Guggenheim Partners. Please go ahead. Your line is open.

Hey, Char. Welcome.

Hey, Chris and Dan. Thank you. Good afternoon. Just quickly on the new guidance that you rolled forward, does the new 24 estimate range still include a vulgal charge. So should we be adding back five cents or so to grow off the five to seven percent like you've talked about in the past? And sort of that new six percent rate-based growth estimate now comes with equity. I guess what's the comfort level of hitting the midpoint of that EPS growth range, which you just reiterated? Thanks.

Yeah, thanks for the question, Char. And I know there's a lot of focus on this. I think we're always fascinated with the precision with which everyone wants to to nail all this down. So let's start with the guidance range. Yes, it absolutely includes impacts from Vogel IV, not only being in 24 at all, but certainly going into, as we've assumed in the guidance range, April. I mean, if you add all that up, that's $0.08 of incremental impact on 2024 relative to what it would have been if the project had been in line in 2023. But we haven't adjusted our range by that full amount by any means. And what we're doing is using the flexibility, not unlike what we did in 2023 with the mildest year ever to kind of mitigate that. Those are the kind of mitigations and flexibility items that aren't necessarily available every year. You have to maintain the system. You've got to make sure you're prioritizing service to customers. And so the, that flexibility is limited. We're using it this year, and that will diminish what we have the opportunity to do going forward. But also, I think what's not factored in is a couple of other important nuances. You know, we thought 40 slides was enough, but maybe we needed one more slide to kind of draw how we always think about our guidance range and our growth range. We don't think about the 5% to 7% being off of the midpoint, we've always kind of drawn those trajectories off the top of it and off the bottom of it. So 7% off the top, 5% off the bottom. I think if you do that from this current range, it captures every reasonable estimate that's out there for 2025 and 2026. When it comes to the rate-based growth, look, we were at 6% last year. We just added $5 billion of capital to the plan we didn't add all the capital that we see as possible. That kind of incremental capital additions opportunity still exists. So, yeah, our ability to grow rate-based and, yeah, it's mitigated ever so slightly by a fraction of a percent of increased shares over time. Our ability to hit our numbers is as solid as it's ever been.

Got it. Okay, that's helpful, Dan. And then just lastly, I know, you know, one of your peers is, you know, spoken pretty extensively on sort of nuclear PTCs and obviously expects to receive, you know, hundreds of millions of dollars a year to fund sort of that capital plan. I guess, does the plan today, do you expect to receive anything material on the nuclear PTC fund? Is it part of any of your credit metrics or funding plans? Thanks.

Yeah, thanks, Char. We have not factored any cash flow from nuclear PTCs into our outlook. We've got a terrific plan with an improving FFO to debt metric that's several hundred basis points above any of our threshold over time and frankly improves every year in the forecast that I look at without those nuclear PTCs. Is there the opportunity for us to capture some of those PTCs? We think there very well could be. We're not counting on it. And to the extent we do, we'll flow those to customers in the most practical amount of time possible. And so it's not going to be a factor in kind of how our metrics are earning.

Terrific. Thank you, guys. Super helpful, Dan, really. Thank you. Yeah, you bet. Thanks, y'all. Thank you.

Thank you. Our next question is from the line of Steve Fleshman with Wolf Research. Please go ahead. Your line is open now. Good afternoon, Steve.

Yeah, hi. Good afternoon. Hey, Chris, Dan. So just... I think you've talked about targeting a 17% FFO to debt, which is differentiated. When do you expect you'll be there, let's say in 2025, when you have first full year of both units running? When do you expect to be there?

Yeah, so I've always kind of said we see a forecast that gets us to 17-ish is the way I've characterized it in the past. So let me tell you where we are here today. And I think it's still differentiated and a terrific story. And we're doing everything we can to make sure we're being conservative in the way we think about this. So we just think about Moody's metrics. Our actual result for 2023 was 14%. Keep in mind, that's before Vogel IV is in service. 2024, with Vogel in service on the timeline, we believe those metrics will improve by more than 100 basis points in 2024. The weight of the incremental capital that we're deploying and the fact that some of this is kind of long live construction, you think about building new gas plants in Georgia or other things, there's a bit of regulatory lag that weighs a little bit on credit metrics. And as that resolves itself, cash flow improves. So with the forecast that I see go from 14 to over 15 and 24, and about a 50 to 60 basis point improvement every year after that over time. And that's a function of that capital. It's, you know, we're issuing the equity to kind of continue the improvement. And then there's a little bit of impact in the short term for under recovered fuel that as that gets collected and the debt goes away, that also kind of adds to that upward trajectory. So in my five-year forecast, we get, you know, kind of in that, mid 16 towards 17 range. But again, every year in the five years is an improving story and still hundreds, hundreds of basis points above our thresholds.

Great. Thanks. And my other question, just the, I mean the, can you just talk to this growth, particularly I guess in Georgia, the 9% a year sales growth, which is at least, um, seems kind of unprecedented, at least for my lifetime. And how are you? Yeah. Go ahead, Chris.

No, go ahead. Finish your question.

Well, I guess just how are you differentiating kind of proposed growth projects between ones that are in your plan or ones that you're kind of holding back from because you're not sure they're going to happen and just you know is this is this a conservative risk-adjusted number or how should i think about that how are you how are you doing it yes because yeah so huge yes it is an unprecedented growth that we continue to witness from economic development activities and so yeah this is a very conservative look i mean we look for

We factor in build permits, building permits in terms of actual announcements. Ground has been broken. I mean, so we look at not just companies that are looking and making site visits, but there's been some demonstrated commitment that they will in fact be building a project in the state. So we go through those thresholds before we make those filings in terms of being having some certainty that these projects are in fact real we've just seen unprecedented economic development activity say for the past three years and we continue to have an aggressive pipeline but as we go to the commission uh for this updated irp we just factored in uh those companies those businesses that have clearly demonstrated uh and taken actions uh that we think of that shows some firmness in their participation in their operating businesses in the state.

Yeah, and I'll just add to that that the momentum in that economic development activity has continued even since filing that 2023 IRP update. And so, you know, thank goodness we've got a filing in 2025 and we do this periodically. It's going to continue to evolve. There's a lot still lingering out there that in our conservative nature we're not counting on yet, but it's not unlikely.

Yeah, but Steve, this is a very conservative look as we make these decisions.

And just one last thing on this, the 9%, since everybody's very focused on data center growth, how much of it is data centers relative to manufacturing or other growth?

Data centers represent right now, we think, somewhere around 80% of that emerging load.

Okay, thank you.

Thanks, Steve. Have a good day.

Thank you. Our next question is from the line of Carly Davenport with Goldman Sachs. Please go ahead. Your line is open now. Hey, good afternoon.

Thank you for taking the questions. Hey, how are you? Thank you. Maybe just to start on the new five-year plan. Could you just talk a little bit about what drove the assumptions you made around including some of that spend on the incremental resource needs in the Georgia IRP? And then with the commission order sort of expected there in April, how would you think about updating the capital plan if it's necessary after that decision?

Yeah, Carly, that's a great question. So I think I alluded to this a few minutes ago. It really is about the velocity and magnitude of this growth that we just kind of characterized for Steve. It's It's right in front of us. These resources are needed sooner than later. And so we think it was reasonable to kind of break trend for us a little bit and get slightly ahead of a regulatory outcome to reflect directionally what's happening. And so just to kind of peel the curtain back a little bit, we were very specific in what we included. If you go back and look at the proposal that Georgia Power put in front of the commission back in the fall, it included a lot of various owned resources. And what we've included in the capital plan is essentially the new combustion turbines. There's three of those. And then two specific storage projects that are kind of located near military bases at Moody's and Robbins Air Force Base. That leaves hundreds, I think over 800 megawatts of storage projects and a small storage of solar kind of not included in there. We will get a decision in April. But again, as a reminder, there's a whole other process coming in 2025. So there may be a degree of clarity in April. There may be further clarity coming out of the 25 process. And as those play out, we'll continue to obviously keep the investment community apprised and update our projections accordingly.

Great. Thank you for that. That's super helpful. And then maybe just as we think about executing on Vogel Unit 4, just any insights on kind of the near-term milestones that we might get updates on that we can gauge progress there? And then to the extent that the timeline does slip beyond kind of the April that's embedded into current guidance, can you talk a little bit about some of the levers that you might have to pull there to sort of offset those impacts?

Yeah. Carl, let me start by saying, you know, with initial criticality achieved yesterday, we continue to progress through testing and startup. The next major milestone is thinking to the grid, and that could occur later this month. We expect unit four completion during the second quarter. And as we take into account the experiences we got from last year with our unit three, as we look at moving through unit four, and we, you know, And we could have worked through these units, how we worked through these issues that could arise. But we view this as a long-term investment and we'll make sure we take the time to get it right. But right now, as we look at where we are, we are planning on the unit being online in April. And we think we have a number of weeks of margin to accomplish that objective.

Yeah. And Carly, I'll speak to the flexibility. I mean, obviously I mentioned earlier, we were kind of already deploying some of that flexibility to, address what we expect to be as of today in April in service. Because beyond that, we've laid out it's roughly three cents for every month. But that's partially why we have a range, right? I mean, it's a 10 cent range out there. So it could be a function of moving us within the range for the year or depending on the circumstances as the year plays out, whether it's weather or something else, we might have some greater degree of flexibility. It's just too early in the year to really be that detailed about exactly how that might play out.

Got it. Appreciate all that color. Thank you both.

You bet, Carly. Thank you.

Thank you. Our next question is from the line of Julian Dumoulin-Smith with Bank of America. Please go ahead. Your line is open now.

Hey, good afternoon, team. Hey, pleasure, guys. Thanks so much for the time. Appreciate it. Hey, a couple quick questions following up on what you guys have said of late. Just on this big number on sales growth, just to clarify, I mean, in your forecast, I know you've got this pending IRP that technically lines up against that sales. Are you seeing an improving ROE in the outlook, or is this really underpinned at this point by just the IRP and the extent to which the IRP doesn't fully reflect that sales outlook? Is there something more to go as you work through the process? Question one, if you will.

So I'm not sure where you're headed with improved ROE.

Just improving returns from the additional sales, if you will.

Well, certainly not improving returns from an overall, say, regulated utility perspective. We really view that as the opportunity to kind of put downward pressure on existing customers' rates. I mean, our objective from an ROE perspective is regular, predictable, sustainable. I think you'll continue to see it play out that way. Just to be clear, Julian, on the sales growth that we've laid out here, so this is roughly 6% in the long term for Southern, that 9% number for Georgia Power. This is actually based on a more conservative view than what's in the IRP update because the IRP update had to put some degree of of expectation for additional success from an economic development perspective so that we do stay ahead of this from a resource perspective. It's not a huge differential, but what it also kind of reinforces is as this continues to play out, those numbers have the potential to continue to go up.

Yeah, excellent. And then just pivoting back to the FFO to debt quickly, I mean, this 17% that you guys were talking about once, I mean, what is – Is that changed at all, just in terms of how you're thinking about, you know, proforma for Vogel 4 coming up?

No, nothing's changed in terms of, you know, what I believe the financial profile supports, which, again, my objective is, I've said this before, I think our parent company being at BBB+, kind of the A category for all the utilities, I think the profile we see ahead of us fully supports that. The only thing that's changed is a slightly slower ramp up in those metrics, because of the incremental capital that we're deploying. But in terms of where we stand relative to any of our thresholds, it's several hundred basis points above any of those, and every year improves.

Wonderful. And then just quickly on the reactor cooler pumps, I know that there was a little bit of talk in the K here. What's sort of the status on V4? And then just to the extent to which there is some root cause impact on some of the other, there's a need to evaluate the adjacent reactor cooler pumps, if you will. I know there's some language in the cabinet.

Yes, and so, yeah, we've done all the analysis. We sent the pump back to the manufacturer, and we think we identified the cause of the issue, but a root cause analysis has not been performed yet. But we have tested all the other pumps, and with the new pump, made sure there were not any similar issues, but we think we're in pretty good shape with the pumps as we go forward.

Got it. Okay, so stay tuned on that front. Thank you guys very much. I really appreciate it.

Thank you.

Thank you. Our next question is from the line of Nick Campanella with Barclays. Please go ahead. Your line is open now.

Hey, Nick. Hey, good morning, or good afternoon, rather. Sorry.

Good afternoon.

I guess just to follow up on the question that Julian had on the root cause I think you just mentioned the possibility of having to go look back at unit three pumps in the K, and just what's the actual risk in your mind, and when is that no longer going to be an issue?

I guess, man, as we have looked at the pump that we sent to the manufacturer, as we identified what we thought the issue was, we think it's not an issue with the other pumps. I mean, we've tested the other pumps. We've assessed the new pump that we installed, and we think we just have a have a good handle and on, on these pumps. And I think you consider the runtime. I think that provides good color to kind of, I guess the confidence we have in the pump and what we've identified as the issues and things we have to do to make sure we don't have similar issues as we go forward.

Yeah. I think globally there's 24 of these things running like a champ right now.

Absolutely. Yep. That's, that's helpful. And then just, On the capital plan and reflecting roughly 60% of the IRP, I know that you kind of get a decision in the first half of this year. So just how do we kind of think about tweaks to the financing plan? Is it just going to be another fourth quarter update this time next year? Or is there a mid-period opportunity in the cards?

Look, none of these regulatory outcomes will be, you know, they'll all be in the light of day. I think it will be clear what's approved and what's yet to be approved. I kind of laid out what we've included already, which is those combustion turbines and two very specific storage projects. And so I think we'll be able to provide color along the way. We'll certainly do more formal updates every year as we normally do, but I think there'll be interim opportunities. And the other interim opportunity that will continue to exist is you know, we've remained extremely conservative when it comes to owning any renewables in any of our electric service territories. But we also are very optimistic that that will happen. And as that gets clarity, we'll make sure that that's known as well.

But you'll also see great transparency through this process, man, as the commission in Georgia works through the process. I mean, staff is filing testimony today and They may have a different perspective, but you'll see that process play out and that leads us to the decision in April by the Commission. But you've seen these IRP processes before. So those processes will continue as we go forward and you'll see real time kind of how it unfolds.

All right. Thanks so much.

Thank you. Our next question is from the line of David Arcaro with Morgan Stanley. Please go ahead. Your line is open now.

Hey, David. How are you? Thanks so much. Hey, thank you. Let's see. Thinking about that load growth trajectory, is 6% rate-based growth still the right kind of parameter to think about longer term? You know, 6% load growth, 6% rate-based growth, is that enough to kind of handle the system strain the generation need just strain on the tnd system over time or is there potential uh upward you know growth rate pressure on that uh rate base growth number as you get into you know later years of this decade yeah look i think dave what we've tried to imply is there certainly is upward potential here we've remained incredibly conservative and measured in how we forecasted not trying to get too far ahead of any regulatory processes

We'll get these decisions in April. We'll have a 2025 process. We believe there's more economic development activity that is likely to come to fruition. And so given all of that, it is certainly not unreasonable that our capital budget will continue to rise to serve that incremental load. And so there certainly could be upward, using your words, pressure on that rate base.

Got it. That makes sense. And I was wondering if you could elaborate a little bit on how you're thinking about the rate impacts coming from that load growth. Are these low-priced new commercial customers when you're thinking about data center and manufacturing customers such that there's a lot of grid investment that has to be covered by others within the system or – or are there opportunities here? It sounded like you kind of see the opposite, where you're bringing in a lot of revenue that ends up being down with pressure on the rest of the system. So I'm wondering if you could elaborate a little bit on how you see rates progressing over time. Yeah, go ahead, Chris.

No, we do expect to see rate decreases for our customers with these additional sales and the customer growth that we'll experience. We think That should more than offset the cost of the resources needed to serve. And so we affordability is something we pay a lot of attention to. And there are things we do internal. And we think that one of the benefits of this sales growth is having the opportunity to put downward pressure on rates for our customers across the board. And so that's kind of how we see it and how we evaluate each project to make sure that it's in fact putting downward pressure on rates.

If you think about where probably every utility company was a year ago, one of the greatest risks facing all of us was affordability. We see this as a tremendous opportunity to de-risk our outlook.

Excellent. Thanks for that. Really helpful. I appreciate it.

Thank you. Thank you. Our next question is from the line of Jeremy Toney. with JP Morgan. Please go ahead. Your line is open. Hey, Jeremy.

Hi, good afternoon.

Good afternoon.

Just wanted to come in, I guess, on the debt funding side, if I could start. Understand the Georgia Power debt funding increase driven by the IRP there. But at the Holdco, just wondering what's the main contributor to the kind of big step up there of expected debt issuance? It looks like, you know, several billion in the 2024 plan now, and I think it was much less than that before. So just kind of curious, I guess, on the Holdco debt issuance step up expectations.

Yeah. So in terms of the change kind of plan versus plan, Jeremy, it's largely driven by the CapEx as well, right? I mean, ultimately the the parent company is funding Georgia Power's equity contribution. And while we're financing that partially with new equity through our plans, it's certainly not all being funded directly with new shares. So there's incremental debt there. And then just the overall magnitude of the parent company issuances is largely driven by maturities. If you look a couple of pages beyond, there's I think over $5 billion worth of maturities in the same time period. So the the amount that's kind of new money is, is much smaller.

Got it. Thanks for that. And just curious if you're able to share any thoughts on the Georgia PSC elections here, just as far as from what you guys see inside the state, uh, for those pending elections, do you expect the ballot and the elections to happen before the November general election? Or do you think it all kind of comes in November? Just kind of curious, I guess, how you think timing could, could shape up there?

I have no idea. I mean, that matters still in the court system. And so we'll observe it just like you are. But I have no insight into how that's going to play out at this time.

Got it. Just a quick last one, if I could. If you guys are running an RFP process in the Georgia IRP and how you think Southern Power and Georgia Power stacks up, I guess, in RFP process there.

Look, just in answering that generally, Jeremy, I mean, and we've said this before, the IRA is going to position all of our electric utilities to be much more competitive in these kind of self-build options when it comes to resources. Whether or not it plays out in this particular RFP or it's a subsequent RFP or it's a customer-specific siting, those things will happen over time, but it's also likely that a function of something later in the plan. So not a 24, 25, maybe not even 26 kind of resource. We're talking really towards the back end of the plan where that becomes a real opportunity.

Got it. That's helpful. I'll leave it there. Thanks.

Thank you.

Thank you. Our next question is from the line of Durgesh Chopra with Evercore. Please go ahead. Your line is open now.

Hey, good afternoon, team. Hey, hey, good afternoon. Just, hey, good afternoon, Chris, and Dan. Dan, is there a way for us to give us a range, and I understand if you can, but just in terms of the current capital plan, what is pegged to the Georgia IRP? What I'm after is what looks like a successful outcome there as we await the April decision. Just trying to see what is baked into the plan and what to look for in that April decision.

Yeah, it's a fair question to guess, but this is where I want to stop short of getting ahead of any regulatory processes here. You know, we've kind of characterized in terms of the megawatts that we've included that it's roughly 60% of the kind of brick-and-mortar megawatts that were proposed. And so the best way for me to characterize it without getting ahead of anything is just say that the incremental capital associated with what we didn't include won't be lost in the rounding. It's a pretty meaningful number.

Understood. I appreciate that, Dan. And then as we think about just along those lines, incremental CapEx upsides, is there a rule of thumb, again, just for our models, high level, how should we think about it getting financed? You've got some strong low growth, but when we're thinking about higher CapEx, what percentage could be equity finance versus debt? Any sort of guidance there?

Yeah, I think what we've done with this update is pretty representative of how we think about additional opportunities. So we added $5 billion of capital to this plan. Let's call that a billion dollars a year on average. We've added roughly $350 million of equity every year. So that 35% to 40% range is kind of representative of our consolidated equity ratio and represents pretty well what we think is necessary to maintain, if not marginally improve, but really just maintain the credit profile that's already in a really good place.

Very clear. Thank you so much. Appreciate the time, guys.

Thanks, Nargis.

Thank you. Our next question is from the line of Andrew Weasel with Scotiabank. Please go ahead. Your line is now open.

Hey, Andrew.

Hey, good afternoon. A couple quick follow-up questions, really. One, just to clarify, the equity of $350 per year, that's through 26 in the slides. It kind of sounds like you're saying that's through 28. Should we think of that as just a run rate, 350 per year going forward, and then potentially more if there's more CapEx?

Yeah, so what that 350 million represents is us turning on what we refer to as our internal plan. So it's issuing new shares through our DRIP, through our 401k, And that's about the run rate. And it just happens to match up pretty well with the needs associated with the $5 billion of incremental capital. We typically also maintain an at-the-market plan as flexibility. And so to the extent there's incremental CapEx that emerges, which, again, is certainly reasonably possible given everything we've described, the ATM is the source that we'll tap into to help finance that.

Okay, very good. Next, on the CapEx update, just to clarify, and sorry if I missed it, does that include anything for Alabama solar, or would that be incremental?

That would be incremental. Yeah, no, that would be incremental. There's still no new rate-based solar included, so we've remained conservative in terms of our projections there in the outlook. And hey, just going back, Andrew, real quickly to the equity question, Just to kind of point out, since maybe it wasn't clear because we only put a three-year financing plan out there, yeah, leaving the plans on every year. And on average, kind of the average increase to shares every year is a fraction of a percent. So that's also kind of in the rounding.

Sounds good. One last one, if I may. Dividend growth, you've been very consistent at $0.08 per share, about 3%. Given the CapEx outlook, is there any point in time at which you might reconsider the trajectory?

Another terrific question. So, you know, we had kind of alluded to the possibility of reevaluating the rate of dividend growth once we got Vogel IV into service and kind of had, you know, we're kind of in a steady state and into the, you know, kind of below 70% somewhere. given our current circumstances where we are in a place of issuing equity, perhaps one of the most efficient sources of equity is to remain modest in the way we continue to increase the dividend. So I think for the foreseeable future, the trajectory we've been on is a reasonable expectation for the trajectory we'll remain on.

Very clear. Thank you so much.

You bet. Thank you.

Thank you. Our next question is from the line of Anthony Clodel with Mizuho. Please go ahead. Your line is open. Hey, good morning, Chris.

Good morning, Dan. If I could just hit you up one quick one on the data centers and I guess the load growth. It seems that we finally are going to get some load growth in this sector, and we're all looking at data centers' help. But it seems that maybe the rate design question we're all trying to figure out, typically a lower margin customer, large investment requirement. And earlier you touched on maybe helping with some customer bills. My question is if you go deeper into that on is it going to be bigger bill impact and bigger fights in rate design, or you don't think that's an issue?

There will always be issues, but I think as we look at increased sales, as we look at growth in customers, and then as we work with these new customers, we think this provides us the opportunity to have downward pressure on rates. And so we will work with many of these customers in terms of their pricing, But once again, I just go back to the fundamentals of increased sales opportunity and this customer growth, how that supports the opportunity for us to put downward pressure all across our customer base to see downward pressure on rates. I mean, we'll evaluate each customer to ensure that that in fact does happen, that they put downward pressure on overall rates across the company.

Yeah, and Anthony, what it appears a lot of these

data centers are beginning to do is prioritize reliable resilient service over many other things that gives us the opportunity to price it appropriately for the benefit of everyone else and yeah and we'll look at the size the demand the timing there are other factors that will go into making sure that we price service appropriately to those customers great thanks for taking my question you're welcome thank you

Thank you. Our next question is from the line of Angie Storzinski with Seaport. Please go ahead. Your line is open now. How are you? Great.

I know that everybody's asking questions about data centers, but I'm just, again, maybe just taking a step back. So when somebody wants to locate a data center in your service territory, do they just get connected to the grid, or do they develop their own power sources? Do you actually see that they, for instance, have some preference for non-emitting resources? Do they use you more as a backup power source? Again, just, again, trying to understand the dynamics of those data centers being added to, for instance, in Georgia.

Angie, there are a lot of considerations that go into that decision. And yeah, we want to connect them to our grid. And yeah, we'll have conversation with them about renewable resources and the mix. But those are conversations that we do have with them, recognizing what upgrades need to be made on the system, locations, where they are. So, you know, there are a lot of kind of really detailed conversations, engineering conversations that go into making those final decisions that also then ultimately impact the pricing for that service.

But again, it's not self-supply, right? So they use Georgia Power, for example, as a source of power. Absolutely.

Yes, that's correct.

Okay. And then secondly, again, I know this question has been asked over and over, just hard to believe that the load growth is not having a bigger impact on your earnings growth. And again, I don't even imagine, you know, this is like an emerging markets sort of case of load growth, especially for Georgia in those outer years. And yet there's no impact, you know, from, again, from our vantage point on your earnings growth. Is it just because the interest expense drag is so pronounced that it absorbs the help that you're getting from higher load growth?

Yeah, Angie, it's a few things. Certainly, you know, relative to where we were a year ago, and I think we've said this before, in a hire for longer environment, certainly interest is a bigger headwind going forward. But the bigger dynamic in your question is around what we're actually investing in to serve this load or why we're investing. So keep in mind the 6% for Southern Company sales growth and 9% for Georgia Power. That's kilowatt hour usage. That's the growth in the total kilowatt hours used. What we invest to do is serve the peaks. And so that looks a little different than the 24-7. We've got a lot of resources. We just may have to incrementally add resources to serve the peaks. And that's what you're seeing largely in the capital deployment. And net-net, we're comfortably in that 5% to 7% growth range.

Okay. Understood. Thank you. Thank you.

Thank you. Our next question is from the line of Paul Fremont with . Please go ahead. Your line is open. How are you doing, Paul?

Great. And congratulations on a good quarter. Thank you very much. Just to clarify, if you were not to get sort of the higher growth rate in sales after 2025, Would that have an impact or potentially change your 5% to 7% growth target?

No.

Okay, great. And then I noticed that the gas capital spending is roughly unchanged. Can you sort of share with us what you're anticipating is going to happen in Illinois? And is there spending that's being shifted from NICOR to any of the other gas subsidiaries?

And, yeah, I think you got it just right. I mean, we see the opportunities to have some increased capital spending in Atlanta around the operations here in Georgia. So we think that that allows that gas investments to be stable going forward. So I think you've spoken to it just right.

Yeah, and any changes in Illinois are modest, to be fair. And the outcome there for us, while disappointing, also provided a bit of a roadmap as to how to be successful going forward in navigating that jurisdiction in terms of just the things we've got to make sure we do as we deploy capital. And keep in mind, a huge, vast majority of the capital that's deployed today for NICOR gas is compliance related. And so there's only so much to kind of not do in the first place.

Great. And then my last question, I mean, generally speaking, when we think of EPS growth, with respect to rate-based growth, there tends to be dilution to the rate-based, to the level of rate-based growth. because a portion or the equity portion is funded either by parent debt or by parent equity. So can you help us sort of understand at 6% rate-based growth, is it possible for you to achieve or how would you achieve sort of the high end of your growth target?

Yeah, great question, Paul. So, again, we were at 6% growth last year in rate base. We've added $5 billion of incremental capital to that. We've kind of characterized it as approximately 6. But then also the shares we're issuing, I think I mentioned this earlier, was that equates to a fraction of a percentage. And it's kind of just in the rounding. We feel very comfortable that net-net, how all these things stack up, is a conservative, achievable forecast.

Great. That's it for me. Thank you very much.

Thank you. Thank you. Our next question is from the line of Travis Miller with Morningstar. Please go ahead. Your line is open.

Hello, everyone. Thank you. Thanks, Travis. You've answered almost all of my questions. I do want to follow up on that dividend. That was one of my questions. Just to clarify what you said, you would expect the dividend growth to stay below earnings growth for at least a couple more years. Did I hear that correctly?

Yeah, Travis, you did. And so, again, our cadence of growth has been $0.08 per year for several years. I think it's reasonable to expect that to continue. Of course, it's all subject to the board's oversight and approval. But what that will do is take us during this high period of CapEx, which hopefully goes on for a very long period of time, brings us comfortably down into the 60s from a payout ratio perspective. And so that's a good place to be, and we'll evaluate every year what the forecast looks like and what's appropriate. Right now, I think the reasonable expectation is that continued modest growth, which is just below 3%. Yeah. Okay. Very good.

Obviously, let's talk about the demand growth. Put another way, what does demand growth mean for operating costs growth? Is there a tight correlation there if you get six or whatever percent annual demand growth? Should we also see a similar increase in operating costs or is there not a link there?

Yeah, there's certainly a relationship. I wouldn't call it a correlation, but, you know, to the extent we're building a new gas plant, certainly that comes along with incremental O&M to the extent we're, you know, building new transmission distribution lines. There's some maintenance component to that. But that's also part of the cost structure that we're ensuring these new rates and revenues will cover, such that the net result is the opportunity to put downward pressure on the existing rates.

Okay, got it. Thanks so much. Let's go ahead.

Thank you. Thank you. Our next question is from the line of Ryan Levine with Citi. Please go ahead. Your line is open.

Hi, everybody. How are you doing? Good. How are you? With Fogel COD targeted for April freeing up some management attention and the personnel changes that were highlighted, do you see any meaningful opportunities to reduce O&M spending below the current guidance as time progresses? Are these initiatives tabled given all the opportunity in Georgia by the IRP process?

No, I mean, we're always looking across our hand and finding ways to be more efficient. I mean, so there's ongoing efforts to – once again, as we look at affordability, I mean, we think about the opportunities to drive rates and pricing down because of sales growth and because of customer growth, but also – making sure that we're focused on looking internal in terms of being more efficient and finding ways to also drive down and drive down the cost of our O&M expenses. Also making sure we take full advantage of fuel pricing. I mean, you see where natural gas prices are now. So looking across the entire portfolio, I mean, that is an ongoing continuous exercise that we'll always focus on in terms of finding ways to drive down O&M and find ways to be more efficient.

Yeah. And just as a, A nuance. All the costs associated with completing Vogel 3 and 4 are capital costs, and so those aren't O&M costs that are an opportunity to reduce.

Yeah, and the last thing I'd add, even though we've had this focus on Vogel, but it hadn't kept us from paying attention to the fundamentals, to making sure that we provided the service that customers expect, but also being focused on the cost of our product.

Okay, and then... What's the peak hour load growth forecast in Georgia, and how much lower is that than the total kilowatt hour growth number that you cited? And as you're looking to execute on this plan, are there any limitations with supply chain that could constrain growth opportunities by the IRP process?

Yeah, look, on supply chain, I think we're in terrific shape given our scale and just We've kind of seen this coming for a little while to the point where we can deploy the resources needed. On your peak question, we'll have to follow up with you on that. Just let's connect with the investor relations team and get you an answer then.

Okay. Well, thanks for taking my questions.

Thank you.

Thank you. Our next question is from the line of Paul Patterson with Glenrock Associates. Please go ahead. Your line is open.

Hey, good afternoon. Hey, congratulations on these opportunities that you guys have. Just with respect to the data center stuff, I mean, A, you did indicate in your prepared remarks it seemed that this was based on actual sort of activity, physical construction activity, et cetera. Is it correct to assume that these guys, these data centers, et cetera, have a price in mind at this point? I mean, they wouldn't be doing this. I mean, obviously, they're using a large amount of electricity. It's part of the economics of their determination to move. That they know how much they're going to be essentially paying for power if they're doing this, correct?

You know, I think there is a yes. I mean, they may not know exactly what the price will be. But once again, as we sit with them understanding their needs, what their desires are, and the level of service, I mean, that all goes into consideration of what the ultimate price will be. I mean, the value, location, reliability, resiliency, all those things go into consideration as we kind of price these projects out. And so that's a part of the negotiation. That's part of the conversation that we have with them.

Okay. In some jurisdictions, because they have their own backup power, because they have to be there in case there is an outage or something, they have to get approval from regulatory commissions, their respective state regulatory commissions. Is that the case in Georgia?

No. I mean, like I said, we will – I mean, they will – yeah.

Yeah. There's some customer-sided programs that have been proposed in the IRP. Paul, that, you know, those are being evaluated and those kind of serve the same purpose, but it's not the dynamic that you're describing in those other states.

Okay, but just roughly speaking, when we're talking about the average data center rate versus the system rate, is there a rule of thumb as to where that kind of is? Do you follow what I'm saying? In other words, I mean, how much of a percentage of the average system rate for Georgia Power, let's say, would a data center customer be roughly, I mean, just roughly speaking, speaking of getting.

I don't think so. I think we may be better informed as we bring some more projects online. And right now I think, I don't think that would be the case. And plus it could be trade secrets as well. So.

Okay. Just finally, when we're looking at 26, 27 and 28, um, and that 9% number, for instance, for Georgia Power, does that go up a lot? In other words, is it kind of – I mean, is 28 a lot higher than 26, if you follow what I'm saying? In other words, it's a three-year period. The number jumps up a lot in that period. Do you follow what I'm saying? In other words, is it roughly the rateable over that period of time, or is this sort of a hockey stick in terms of what you see in terms of this demand?

Yeah. It's fairly rateable, Paul. It's obviously not perfectly linear by any means, but the significant load really begins to come in and say late 25 and into 26, which is why a lot of the resource proposals you see at Georgia Power are to really serve the 26, 27 winter peak to make sure they're in place for that, and then it continues to grow from there.

Well, thanks so much, and congratulations.

Thank you. Thanks, Paul.

Thank you, and that will conclude today's question and answer session. Sir, are there any closing remarks?

Again, let me say Southern Company had an exceptional year in 2023, and I am really excited about the future of this company. Let me thank everybody for joining us today and wish everybody a happy day, and thank you very much.

Thank you, sir. Ladies and gentlemen, this concludes the Southern Company fourth quarter 2023 earnings call. You may now disconnect. Have a good day.