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The Southern Company (SO) Q4 2022 Earnings Call Transcript

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The Southern Company (NYSE:SO) Q4 2022 Results Conference Call February 16, 2023 1:00 PM ET

Company Participants

Scott Gammill - Vice President, Investor Relations & Treasurer

Tom Fanning - Chairman, President & Chief Executive Officer

Dan Tucker - Chief Financial Officer

Chris Womack - Georgia Power, Chief Executive Officer

Conference Call Participants

James Ward - Guggenheim Partners

Steve Fleishman - Wolfe Research

David Arcaro - Morgan Stanley

Durgesh Chopra - Evercore ISI

Angie Storozynski - Seaport Global

Nick Campanella - Credit Suisse

Anthony Crowdell - Mizuho

Operator

Good afternoon. My sanction is Scott, and I will beryllium your convention usability today. At this time, I would for illustration to invited everyone to nan Southern Company Fourth Quarter 2022 Earnings Call. All lines person been placed connected shut up to forestall immoderate inheritance noise. After nan speakers’ remarks, location will beryllium a question-and-answer session. [Operator Instructions]

I would now for illustration to move nan telephone complete to Mr. Scott Gammill, Vice President, Investor Relations and Treasurer. Please spell ahead, sir.

Scott Gammill

Thank you, Scott. Good afternoon, and invited to Southern Company's year-end 2022 Earnings Call. Joining maine coming are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company; and Dan Tucker, Chief Financial Officer. In addition, Georgia Power's CEO, Chris Womack, who will beryllium succeeding Tom arsenic President and CEO successful nan coming months is besides joining us.

Let maine punctual you, we'll beryllium making forward-looking statements coming successful summation to providing humanities information. Various important factors could origin existent results to disagree materially from those indicated successful nan forward-looking statements, including those discussed successful our Form 10-K, Form 10-Qs and consequent filings. In addition, we will coming non-GAAP financial accusation connected this call. Reconciliations to nan applicable GAAP measurement are included successful nan financial accusation we released this greeting arsenic good arsenic nan slides for this conference call, which are some disposable connected our Investor Relations website astatine investor.southerncompany.com.

At this time, I'll move nan telephone complete to Tom Fanning.

Tom Fanning

Thank you, Scott. Good day and convey you for joining america today. Southern Company had different exceptional twelvemonth successful 2022. As you tin spot from nan materials that we released this morning, we reported beardown adjusted net per stock accordant pinch nan very apical of our guidance range. These results were owed successful nary mini portion to nan culmination of nan difficult activity of thousands of group passim our institution to put successful time successful and time retired to supply customers pinch clean, safe, reliable and affordable energy.

Our operations team, procreation fleet and powerfulness transportation strategy worked exceedingly good successful 2022 which included gathering an all-time highest load of complete 41,000 megawatts successful June and navigating good successful utmost wintertime acold arena complete nan Christmas play that pushed electrical request to a strategy highest load of astir 38,000 megawatts, a December record. Our occurrence pinch these events is simply a testament to nan worth of our vertically integrated authorities regulated business exemplary delivers to our customers and nan communities we are privileged to serve.

A awesome illustration of nan benefits which travel from our state's semipermanent integrated readying processes is nan 26% wintertime reserve separator factored into nan capacity readying process. This wintertime reserve margin, which is importantly higher than emblematic summertime reserve separator inherently recognizes that highest request successful nan wintertime occurs during nan acheronian early greeting hours erstwhile star resources are diminished and acold temperatures tin person unintended adverse effects connected procreation and substance proviso equipment. Such thoughtful readying assumptions, on pinch robust winterization programs and a continuous attraction connected resilience investments are apical of mind crossed each of our state-regulated utilities.

Let's move now to an update connected Vogtle Units 3 and 4. Since our past call, nan tract squad astatine Unit 3 has turned to testing and start-up process successful support of nan unit's adjacent awesome milestone, first criticality. During this process, arsenic disclosed successful January, we identified vibrations associated pinch definite piping wrong nan passive cooling system, which required further clip to remediate. The tract squad cooled down nan portion and successfully remediated nan vibrations, allowing them to resume nan testing, which precedes first criticality.

During this work, we identified a fewer further issues to address, accordant pinch our attraction connected optimal semipermanent capacity and getting it right. We've added immoderate further clip to nan Unit 3 schedule to reside these items and to trim nan risks associated pinch different imaginable issues emerging. We now task placing Unit 3 successful work successful May aliases June of 2023.

Turning now to Unit 4. Substantial advancement continued passim nan past quarter. We successfully completed acold hydro testing successful early December. Electrical accumulation and terminations done year-end were sustained astatine levels supportive of our year-end 2023 in-service objective. All required systems basal to commencement basking functional testing connected Unit 4 person been completed and turned complete to nan first trial program. Component and strategy testing activities are steadily expanding and are now captious way successful support of nan adjacent awesome milestones for Unit 4, basking functional testing and substance load.

We person seen a marked betterment successful testing results for Unit 4 compared to nan Unit 3 process, which reflects nan accrued attraction connected first-time building value and timely documentation. Even pinch nan improved results, somewhat slower than planned testing productivity has consumed separator successful our schedule. The sites moving Vogtle continues to bespeak a mates of months of remaining separator for a 2023 in-service date.

After observant information and fixed our acquisition connected Unit 3 and nan grade of captious activity up of us, we are further consequence adjusting our Unit 4 schedule to bespeak a scope of nan projected in-service day betwixt precocious 4th 4th of 2023 and nan extremity of nan first 4th of 2024.

Turning now to cost. Georgia Power's stock of nan full task superior costs forecast reflects a projected summation of $201 cardinal to money nan hold of Unit 3 and Unit 4 projected in-service dates to nan extremity of nan 2nd 4th 2023 and to nan extremity of nan first 4th 2024, respectively, positive humble increases successful nan projected costs of resources to complete nan remaining activity and testing connected Unit 4. As a result, Georgia Power recorded an after-tax complaint of $150 cardinal during nan quarter.

We've included task schedules for nan adjacent awesome milestones for each unit, including first criticality for Unit 3 and and nan commencement of basking functional testing for Unit 4 successful nan materials provided for this call. Our privilege remains bringing Vogtle Units 3 and 4 online to supply Georgia pinch a reliable, carbon-free assets for nan adjacent 60 to 80 years. We will proceed to return nan clip needed to get it correct and will not sacrifice information aliases value to meet schedule.

Dan, I'll move nan telephone complete to you.

Dan Tucker

Thanks, Tom, and bully afternoon, everyone. As Tom mentioned, we had beardown financial results for nan twelvemonth pinch adjusted net of $3.60 per share, $0.19 higher than 2021. The superior drivers for nan year-over-year summation are higher revenues associated pinch unit pricing, warmer weather, chiefly successful nan 2nd 4th of 2022, customer growth, accrued usage and finance connected our regulated utilities.

These gross effects were partially offset by higher non-fuel O&M expenses and higher liking expenses. The summation successful non-fuel O&M reflects semipermanent commitments to our regulated utilities to reliability and resiliency, on pinch efforts to beforehand attraction activities successful ray of emerging costs pressures.

Additional shares from nan mandatory conversion of our equity units successful August '22 are besides reflected successful 2022 EPS results. A elaborate reconciliation of our reported and 2022 and backmost supra pre-pandemic levels, we proceed to spot robust residential maturation pinch nan summation of astir 50,000 residential electrical customers and complete 30,000 residential state customers passim nan year.

Residential customer usage besides continued to outpace our expectations, reflecting sustained hybrid activity practices crossed our work territories. Additionally, commercialized income for 2022 hit our forecast by astir 2%, reflecting a reversion to pre-pandemic trends arsenic nan system shifts from consuming equipment to services.

Industrial income for 2022 were little than forecast by 1.5%, driven by a chemic installation closure and weakening business income momentum during nan 2nd half of nan year. With liking rates rising, we person seen slowing successful building and housing-related sectors, specified arsenic lumber, stone, clay and solid and textiles.

In nan 4th fourth of 2022, 8 of our apical 10 business segments knowledgeable slower income maturation arsenic compared to nan anterior quarter. Included successful our 2023 guidance is an presumption of unit electrical income maturation of 0% to 1%. And arsenic successful anterior quarters, we proceed to show nan imaginable implications of proviso concatenation constraints, labour unit information and inflationary pressures connected our outlook.

The economical improvement pipeline successful our work territories remains robust. 2022 economical improvement announcements successful our Southeast work territories saw an summation successful expected occupation creation and superior finance of 135% and 257%, respectively, successful 2022 arsenic compared to 2021. The pipeline of imaginable projects grew importantly compared to caller years pinch caller firm announcements and description s representing a wide cross-section of industries, including automotive, technology, e-fulfillment and distribution, wellness attraction and bioscience.

In summation to nan accepted factors that person historically drawn businesses to our work territory for illustration proscription networks, little costs of surviving and business-friendly authorities and section policies. Another emerging inclination that continues to thrust momentum successful some economical improvement wins and nan size of nan imaginable pipeline is nan diversified workforce, particularly exertion workers and nan divers assemblage systems successful our territories, which prominently characteristic respective HBCUs.

We're proud to person been connected nan forefront of helping create this workforce done our important finance on pinch Apple successful nan Propel Center successful Atlanta. More and more, arsenic different companies strive to person their workforce bespeak nan divers world customers they serve, our Southeast work territories person go a apical prime for relocation aliases description .

We are proud of nan important domiciled that our subsidiaries play successful attracting caller businesses to our work territories. And successful 2022, Site Selection Magazine named Alabama Power and Georgia Power, Top U.S. utilities for economical improvement for nan 4th consecutive twelvemonth and admit nan authorities of Georgia arsenic nan 2nd champion business ambiance successful nan country. Strong economical improvement activity continues to differentiate our Southeast work territories from different areas of nan country.

Turning now to our expectations for 2023. Our adjusted net guidance scope for nan twelvemonth is $3.55 to $3.65 per share. Expected drivers for 2023 versus 2022, our continued maturation successful our state-regulated subsidiaries, including nan publication related to Vogtle Unit 3 going into service, offset by higher genitor institution liking disbursal including financing costs for Plant Vogtle Units 3 and 4 pinch costs successful excess of $7.3 cardinal seemed reasonable by nan Georgia PSC and stock dilution, reflecting nan afloat twelvemonth effect of nan mandatory conversion of our equity units successful August 2022. We estimate adjusted net of $0.70 per stock for nan first quarter.

Additionally, we are narrowing our 2024 adjusted guidance scope of $4 to $4.30 which was established successful early 2021. In bid to admit nan uncertainty inherent successful providing guidance 3 years successful advance, nan original 2024 scope was wider than our emblematic yearly EPS guidance ranges.

Since this scope was introduced successful February 2021, our state-regulated outcomes person been mostly accordant pinch our assumptions. Several upside opportunities inherent successful nan apical extremity of our original range, for illustration renewable and retention finance opportunities astatine some our state-regulated electrical companies and Southern Power person been deferred to later years mostly owed to adverse marketplace conditions, including much challenging, contracting requirements and world proviso concatenation constraints.

Financing costs, peculiarly genitor institution liking rates are a important headwind comparative to our forecast successful early 2021. Rates connected adaptable and short-term indebtedness are importantly higher than expected, and arsenic securities successful our low-cost indebtedness portfolio mature, caller issuances, nary matter nan tenor, are importantly much expensive. Compounding these antagonistic genitor institution liking complaint effects are nan maturation successful our state-regulated superior plans comparative to early 2021 and nan accrued costs for Georgia Power stock of Vogtle 3 and 4 which has grown by astir $1.9 cardinal since early 2021.

Collectively, these factors would constrictive our $4 to $4.30 range, adjusted for 2024 to $4.10. Adding nan imaginable for Vogtle 4 to beryllium completed astatine nan extremity of nan first 4th of 2024 which would person a antagonistic $0.05 per stock effect solely successful 2024, we are providing an adjusted 2024 net guidance scope of $3.95 to $4.10 per share.

We scheme to further constrictive this scope during our 4th fourth 2023 net telephone early adjacent year. We proceed to spot our semipermanent adjusted EPS maturation complaint successful nan 5% to 7% range, accordant pinch our updated 2024 adjusted EPS guidance range. This projected maturation is supported by a $43 cardinal superior scheme pinch 97% of full projected superior deployment complete nan adjacent 5 years astatine our state-regulated utilities. Additionally, our history of constructive regulation, beardown in installments ratings and disciplined O&M spending served to fortify our outlook.

Our robust superior finance programme continues to beryllium driven by important finance successful our state-regulated inferior businesses, our full guidelines superior finance scheme of astir $43 cardinal which excludes nan superior required to complete Vogtle Units 3 and 4 reflects a $2 cardinal summation successful state-regulated inferior investments comparative to our erstwhile five-year forecast. These increases successful our forecast are nan consequence of greater visibility into infrastructure required to service awesome customer additions and description s, further amended our grid and protect our exertion infrastructure, arsenic good arsenic investments related to nan translator of our procreation fleet.

We person continued to support our disciplined attack to superior forecasting wrong our authorities regulated inferior businesses. Consistent pinch past practice, we don't see placeholders, and we don't see superior that isn't expected to gain aliases allowed regulated returns. The consequence of this attack is that our superior expenditure forecasts thin to turn particularly successful nan later years arsenic our visibility into customer maturation increases arsenic regulatory processes unfold arsenic compliance obligations evolved and arsenic our semipermanent strategy readying is refined. We afloat expect this inclination to continue.

Additionally, we proceed to judge Southern Power has a important opportunity to proceed increasing done investments that facilitate fleet transitions and nan maturation of cleanable power infrastructure crossed nan United States. Southern Power's business exemplary has been unique since its beginnings successful nan early 2000s, focusing connected semipermanent contracts pinch creditworthy counterparties and a risk-adjusted return floor plan that aligns good pinch our wide worth proposition.

We've allocated up to $3.5 cardinal complete nan five-year scheme pinch astir $500 cardinal successful 2023 and $750 cardinal annually for nan remainder of nan forecast period. These allocations of superior are not included successful our guidelines superior forecast.

Our financial scheme is anchored to our guidelines superior forecast of $43 billion. As I person already suggested, we judge upside imaginable exists successful our state-regulated subsidiary forecast and our Southern Power allocation, which, if realized, would consequence successful full walk of complete $46 billion. We besides proceed to judge galore of nan aforesaid drivers for further imaginable finance complete nan adjacent 5 years could construe to finance opportunities beyond 2027, arsenic we proceed our travel to execute nett zero greenhouse state emissions.

We've included a 3 twelvemonth financing scheme successful nan appendix to today's descent deck. This plan, which is accordant pinch our updated superior finance scheme and nan imaginable superior finance opportunities that we person highlighted continues to presume nary equity request complete our five-year readying horizon. As always, we will support our subject and nan elasticity to usage each nan financing devices astatine our disposal to thrust worth for shareholders.

Credit value and beardown investment-grade in installments ratings stay a apical privilege and we proceed to judge that to beryllium a high-quality equity investment, a institution must support a beardown in installments profile. As we complete Plant Vogtle Units 3 and 4, we judge nan expected simplification successful building consequence and nan projected betterment successful FFO to indebtedness metrics further position america to support our in installments value objectives.

Tom, I will now move nan telephone backmost complete to you.

Tom Fanning

Thank you, Dan. Southern Company strives to present superior risk-adjusted full shareholder returns, and I judge nan scheme we've laid retired will support that objective. Our customer and community-focused business model, our increasing finance successful our state-regulated inferior franchises, nan privilege we spot connected in installments value and our action towards achieving nett zero greenhouse state emissions each lend to making Southern Company a premier sustainable investment.

Our singular dividend way grounds remains a captious constituent to our worth proposition. For 3 quarters of a century, we person paid a quarterly dividend that is adjacent to aliases greater than nan erstwhile quarter, including sustained dividend increases for much than 20 years.

In closing, I'm judge that astir of you are good alert of nan caller announcement of Chris Womack to win maine arsenic President and Chief Executive Officer successful nan coming months. I will stay arsenic Executive Chairman of nan Board of Directors. In conjunction pinch this announcement, wherever a number of different elder activity changes, which highlighted nan extent of talent we've worked difficult to create astatine Southern Company.

I expect each of these leaders will flourish successful their caller roles, further fortify nan Company's heavy chair and bring a caller position to each of our businesses. With Chris Womack and his squad starring us, nan early of Southern Company is successful awesome hands arsenic we proceed to strive to make nan communities that we person nan privilege to service amended disconnected because we're there. And arsenic we proceed our relentless pursuit to supply customers pinch clean, safe, reliable and affordable energy.

With that, I'll move nan telephone complete to Chris Womack for a fewer little remarks earlier we get to Q&A.

Chris Womack

Thank you, Tom, and bully afternoon, everyone. I cannot beryllium much excited to person nan privilege to lead Southern Company successful nan months and years ahead. It is an important clip successful our manufacture arsenic nan power scenery continues to germinate and customers' needs proceed to change. Southern Company is astatine nan forefront of that evolution, and we are building nan early of energy. It is an grant to lead teams that are dedicated to innovating and delivering world-class customer work and reliability to customers while besides moving boldly guardant successful our travel to continuously correspond our values and amended nan communities we serve.

Tom and his predecessors on pinch nan thousands of squad members crossed nan endeavor Tom mentioned earlier person built a coagulated instauration for Southern Company. And we've sewage a batch of important activity up of america to proceed to build upon their legacy. Thank you each again for joining america this afternoon. I look guardant to getting nan opportunity to get retired and interact much intimately pinch each of you successful nan finance organization during nan weeks and months ahead.

Operator, we are now fresh to return questions.

Question-and-Answer Session

Operator

[Operator Instructions] We do person a mobility from Shar Pourreza pinch Guggenheim Partners.

Tom Fanning

Shar, really are you?

James Ward

Tom, Shar is really connected nan roadworthy walking astatine West. It's James Ward present connected for him. Thank you. Very overmuch appreciated. Glad to beryllium here.

I conscionable wanted to first congratulate Chris, connected your caller domiciled and Tom, connected your planned modulation and nan improvement of your domiciled successful nan Company. So congrats to you both.

So I person a fewer questions here. Quick 1 disconnected nan bat. I conscionable had a fewer inbound questions from people. To clarify, nan 5 to 7 guidelines remains nan 2024 midpoint, but now it's nan midpoint of $3.95 to $4.10, is that correct? Or is location different measurement to deliberation astir nan guidelines for that 5 to 7 going guardant post-Vogtle?

Dan Tucker

Yes. James, this is Dan. So look, we were very intentional successful choosing nan words accordant pinch our adjusted guidance range. Those words were really acknowledging of 2 things. Thing 1 is conscionable for illustration we did pinch nan $4 to $4.30, will further constrictive this scope arsenic we get statement of show connected Unit 4 and person our 4th fourth net telephone adjacent year. Thing two, that it acknowledges is that nan $0.05 effect for Vogtle 4 perchance going into nan first 4th of 2024 is simply a one-year effect and truthful nan maturation complaint will beryllium disconnected of that narrowed scope erstwhile we get to 2024.

Tom Fanning

The different point is nan $0.05 reflects a afloat charge, assuming you spell successful astatine nan extremity of nan quarter. I'm really I would beryllium a small disappointed if that's wherever we extremity up. Right now, arsenic we stand, adding that other quarter, we sewage 5 months of separator connected Unit 4. Hopefully, we tin do amended than that.

James Ward

That's very clear and that's great. Okay. So it'd beryllium a higher guidelines than what immoderate group mightiness person been reference it out. That's bully to hear.

Looking astatine your caller superior scheme and past assuming that immoderate aliases each of nan CapEx beyond nan guidelines plans are capable to beryllium added. Could you springiness america a spot much colour connected really overmuch of that $3 cardinal could perchance extremity up astatine nan regulated utilities versus Southern Power? And past arsenic a follow-up, successful nan slides, you show nan 11 different categories there, nan examples of wherever that incremental finance could beryllium renewables, transmission, et cetera. In your view, which of these categories are astir apt to extremity up successful nan plan? What's benignant of low-hanging fruit, if location is specified a point aliases conscionable what is astir probable and successful benignant of what years if we were to beryllium building benignant of an upside script versus a guidelines script that we're trying to look astatine what would make nan astir consciousness to benignant of prioritize there?

Tom Fanning

Yes. If it was me, do you see nan graphs you've done successful nan past astir really nan CapEx shows? We person yes, location you go. Was that Page 21 is what I'm looking at. I do cognize what you guys see. We person a history of ever undershooting, particularly our outward twelvemonth forecast. And connected nan average, I would opportunity that taken complete nan 5 years, we undershoot different $3 billion, conscionable information numbers.

So if you look complete nan full five-year play and an upside case, whitethorn see $3 cardinal of further franchise related complaint guidelines looking CapEx investments. Whether Southern Power hits its $3 cardinal aliases not, remains to beryllium seen astir marketplace conditions, proviso concatenation constraints and a assortment of different things.

We've been very clear successful past calls to telephone retired what I deliberation person been challenging marketplace conditions. Shorter terms, we for illustration bilateral contracts, nary substance risk, creditworthy counterparties, et cetera. The statement conditions person gotten tougher. And we're very disciplined. We mostly expect astir 150 ground points premium for america to spell down nan bilateral statement retired via Southern Power arsenic compared to our franchise utilities.

Now whether we're capable to copy that aliases not, we'll see. If they don't show up, we won't invest. If you want to see much upside, I would see immoderate information of that $3-plus cardinal for Southern Power complete nan five-year period. I would besides benignant of tilt those investments towards nan backmost end.

One past remark I will make, we said it successful nan script, but I deliberation it's important. When you look astatine further CapEx disposable extracurricular nan five-year period, I deliberation you really do commencement picking up immoderate of nan procreation modulation benignant of superior that whitethorn beryllium available. Recall, we will person a precocious bias towards much gas, much renewables, peculiarly star successful our region.

Dan, do you want to adhd to that?

Dan Tucker

Look, I deliberation you covered it really well. The different point I'd conscionable reinforce, James, is that nan 5% to 7% maturation complaint is based connected our $43 cardinal superior scheme opportunity to deploy much than that simply strengthens our position successful that respect aliases perchance lengthens our position successful that regard. And conscionable going backmost to what Tom said astir nan longer term. Just recall, a batch of our ember status plans hap astatine nan very extremity aliases nan twelvemonth aft our five-year plan, and that really is wherever a batch of incremental opportunities besides get unlocked.

Tom Fanning

I mean, for example, a large slug of retirements are successful '29. So arsenic Dan said, that's extracurricular nan fact.

James Ward

Got you. That's highly adjuvant and particularly nan colour connected upside there. Very overmuch appreciated. Yes, that helps a lot.

The last mobility for america is successful nan slides, you mentioned that you expect robust customer maturation crossed your work territories will past also, of course, only expecting level to somewhat expanding unit electrical sales, building connected nan specifications that you shared successful nan prepared remarks. Could you springiness america conscionable a spot much granularity fixed that these are wide alternatively than conscionable regionally focused connected 1 peculiar area? On these wide trends, what's driving nan divergence there? Or are you conscionable taking a much blimpish attack going guardant to thief america understand a spot much really to look astatine it?

Tom Fanning

Yes. It is benignant of a blimpish approach. But here's nan thing. We person successful beforehand of america benignant of information that supports a mates of different scenarios. On CNBC this morning, I talked astir nan imaginable for a soft aliases nary landing. In different words, erstwhile you look astatine maturation year-over-year, we person benignant of a antagonistic mixed container of things going connected successful industrial.

They're not each negative. There are immoderate positives. But erstwhile you look astatine nan momentum statistics, that is nan first derivative of growth, they're each negative. In different words, moreover if you grew year-over-year, nan maturation complaint was smaller. So that would look to bespeak that astatine slightest wrong nan business sector, that things are slowing a bit. Now they person been measurement amended than what they thought we would be, but still slowing, okay?

On nan different hand, what we're seeing retired of our economical improvement statistics, summation successful occupation announcements of 130% summation successful superior finance a small complete 250%. That says that economical improvement projects mostly show up successful nan 2 to 3 to possibly much clip frame. So what it says is we whitethorn spot a wee spot of a downturn of slowing successful nan system successful -- successful 2023, but we don't spot this point dipping into recession levels, and we spot recovery.

Certainly, I deliberation nan Southeast is demonstrated that capacity successful nan past. A mates much economical information that's important. We thin to turn astir 1% a twelvemonth projected for nan next, I don't know, 5 years. Everybody is capable to get jobs for nan astir portion correct now. We person historically debased unemployment levels. So you adhd nan benignant of dependable drumbeat of organization maturation to nan Southeast arsenic Dan said before, a business-friendly climate. I deliberation we tin spot possibly immoderate slowing successful '23, but recovering successful '24.

Dan Tucker

And past James, conscionable link that backmost to your erstwhile question. Look, this maturation is surely exceeding our expectations successful position of nan economical improvement activity, and that could very good construe to nan request to put much to service that load that was not anticipated. So we deliberation complete nan adjacent 3 to 5 years, that will each statesman to beryllium very transparent to nan market.

Tom Fanning

One past point. The -- it looks for illustration nan activity situation connected employees, we telephone it hybrid now, but it looks for illustration it's settling down. So we're seeing residential higher than what we thought commercialized is surely higher than what we thought. We'll spot really that useful retired successful nan future. There's astir apt still immoderate variance there.

James Ward

Very adjuvant each around, particularly successful framing imaginable upside scenarios there, which it looks for illustration you guys mightiness beryllium very good positioned to caput into depending connected really nan macro situation useful out. Either way, looking guardant to having Vogtle done this year, arsenic I'm judge you and everyone other are and being capable to move connected to everything you've conscionable been talking about. So it looks for illustration awesome things ahead. Thanks again for taking nan question. Appreciate it.

Operator

We person a mobility from Steve Fleishman pinch Wolfe Research. Please spell ahead. Your statement is open.

Tom Fanning

Steve, acknowledgment for joining us.

Steven Fleishman

Yes, truthful conscionable connected -- and by nan way, congrats to some Tom and Chris and Tim and team. So -- nan -- connected nan Vogtle 3, could you please elaborate connected nan fewer further issues that are remark of reducing consequence of different issues? Can we get colour connected each that?

Tom Fanning

Yes, sure. There were benignant of 3 things. There were galore different tests successful nan 3 things we identified. So -- you should cognize that we successfully evaluated a batch of things going up to criticality. So nan 3 though that we constituent to that caused delays, astatine slightest nan first 2 connected their ain weren't big, but they required america arsenic we started to power nan works up and pressurize it, we saw nan vibrations.

There was immoderate speech astir whether we should commencement nan captious trial and hole it later and we said, no, let's do it right. So we brought nan works down. We inserted a mates of metallic plates, to beryllium honorable pinch you. It's to immoderate trucks that link to nan tube and hole nan vibration. I mean it was beautiful straightforward, it conscionable took clip to power up, pressurize, return power down, depressurized.

The 2nd point we saw was a valve that was connected to immoderate pipes that efficaciously had 2 DRIPs per minute. We wanted to destruct each DRIPs. And we identified that location was a repositioning of a flange associated pinch this valve that we yet are -- I deliberation we're conscionable astir fixed pinch it today, but I sewage a study from Pete Sena, our President of Nuclear. And I deliberation that's done today. That's completed.

The past rumor is not completed, but it has to do pinch travel done nan reactor coolant pumps. And we're conscionable now making judge that we cognize what nan rumor is. It could beryllium a beingness issue, it could beryllium a calibration issue. In fact, nan travel whitethorn beryllium good, but we request to recalibrate nan measurements astir it. So we're each astir benignant of looking astatine that today.

Steven Fleishman

Okay. And past successful position of nan remark astir doing these to trim nan consequence of different issues, is that -- are you saying location that benignant of by doing these things? Do you deliberation nan chance of different things coming up astatine this constituent is going to beryllium little aliases thing aft you started up aliases nan opposite?

Tom Fanning

I would deliberation so. Yes, Steve, I would deliberation so. I mean, that's -- erstwhile we spell successful to hole nan vibration connected nan pipe, we saw this different group we said, yes, let's not push it, let's hole it. All of that takes time. It's conscionable building we use, but we really do enactment connected it and get it right. We'd alternatively person this thing, get into criticality. Once you spell atomic and spell critical, things go overmuch tougher. So thing we cognize astir let's woody pinch it now.

And you should cognize that thing we find now we spell complete to Unit 4 and cheque that, for example, and we deliberation nan rumor connected tube vibrations is spoken for now connected Unit 4. We won't spot that. So anyway, that really is nan answer. We're trying to get arsenic overmuch arsenic we can. Once you get spell critical, it's a overmuch much challenging situation than it is earlier you spell critical. Just trying to get everything we tin spot correct now.

Steven Fleishman

Okay. And I conjecture is nan truth that you recovered these things benignant of a interest that you're going to find more? Or is it really much nan other that you recovered these things, this is conscionable portion of a large works starting up, and hopefully, there's little of a consequence from here?

Tom Fanning

Yes. But that is why we test, right? I mean you should position nan powerfulness ascension erstwhile you spell captious arsenic a bid of tests that impact a full assortment of different conditions of nan plant, taking it up, bringing it down, throwing emergency stops successful there, each kinds of things. The intent of nan first voyage, if they will, nan trial voyage is to find problems. And we let for that wrong nan schedule.

And now, successful fact, we person much clip to let nan schedule calls for, I guess, connected nan original schedule, thing for illustration 2 months of testing, nan prescribed start-up successful is 2 months. And there's astir a period of slack clip to hole things, okay? We now have, I think, different period that we've added into our projection into nan 2nd quarter. But for sure, Steve, we'll find some…

Operator

Our adjacent mobility is from David Arcaro pinch Morgan Stanley. Please spell ahead. Your statement is open.

David Arcaro

Extend my congratulations arsenic well. I was conscionable wondering, a follow-up connected that question. Is NRC approval? Has that been needed for immoderate of nan remediation activity connected these mates of issues that you recovered astatine Unit 3?

Tom Fanning

We've been successful changeless interaction pinch nan NRC. And we did have, I think, pinch relationship of nan vibration 2 licence amendments, but we sewage those successful a matter of days. This was not a prolonged process. And for illustration I say, I deliberation that we proceed to activity manus successful mitt pinch those guys.

They were besides alert of nan valve leak and they're happy, I think, pinch nan process that we're pursuing there. You should understand that nan moving narration pinch each of nan outer parties, whether it's nan NRC aliases whether it's nan authorities committee aliases DOE, anybody. We each beryllium successful nan aforesaid meetings. We each spot nan aforesaid stuff. We person and complete transparency and everything we do connected that side.

David Arcaro

That makes sense. Understood. And are these issues that astatine this constituent now, you could perchance debar for Unit 4 bring learnings from nan start-up process connected Unit 3 and perchance make Unit 4 smoother specified that it's not a benignant of a one-for-one hold present equals a hold later?

Tom Fanning

Amen, brother. That's precisely what we're trying to do. And successful fact, nan process, I deliberation it's been noted by galore person shown that Unit 4 is going a batch smoother than Unit 3 conscionable because of learnings of Unit 3. I deliberation nan process we went done successful Unit 3 astatine times was somewhat painful, but I deliberation it was surely instructive.

If you whitethorn remember, arsenic we started, we went into HFT for Unit 3, we were turning complete systems for illustration nan time earlier we went to HFT. For example, each systems basal to undertake HFT person been completed. The agelong rod successful nan 10 connected HFT astatine Unit 4 is our ITP, our integrated trial plan.

David Arcaro

Yes. Got you. Got you. And past a abstracted topic, but nan diminution successful earthy state prices is simply a bully tailwind for customer builds. I was wondering erstwhile would customers -- could you conscionable punctual america erstwhile they mightiness spot little prices travel done into rates? And really does that interact this twelvemonth pinch your plans for nan deferred substance collections?

Dan Tucker

David, this is Dan. So certainly, little prices are going to use customers. And Georgia Power, successful particular, who has nan largest unrecovered equilibrium ended nan twelvemonth astatine astir $2.1 billion. They'll record astatine nan extremity of February for those rates. So I surely don't want to front-run that process.

But if to nan grade forecast proceed to look nan measurement they do coming aliases further travel down, nan effect connected customer bills will beryllium greatly mitigated. The -- our different electrical jurisdictions person already initially addressed nan nether betterment that was happening. And truthful these little prices are simply going to accelerate that recovery.

Operator

And we person a mobility from Durgesh Chopra pinch Evercore ISI. Please spell ahead.

Tom Fanning

Thanks for joining us.

Durgesh Chopra

Thanks, Tom. Appreciate it. I think, Dan, this is successful your position house. Maybe conscionable -- I apologize if I missed this, but tin you springiness america your benignant of your CFO to indebtedness aliases FFO to indebtedness arsenic of year-end 2022? And wherever that is search versus nan -- your targeted in installments metrics? And past erstwhile successful your readying horizon, do you expect to get to your targeted in installments metrics?

Dan Tucker

Yes, Durgesh, acknowledgment for nan question, and happy to stock that. And arsenic you know, each nan agencies cipher those metrics astatine a somewhat different way. But I deliberation there's surely a batch of attraction connected Moody's and S&P. So I'll deed connected those, successful particular. Moody's, we were astir 12% for 2022 and S&P astir 15%.

And arsenic you'd expect, those were beautiful importantly impacted by nan under-recovered substance dynamics, peculiarly nan Moody's metric successful nan measurement that they cipher that. A information of it is nan indebtedness and a information of it for america is besides nan effect that nether recovering that substance had connected our taxation appetite and our expertise to monetize taxation benefits, you harvester those factors overall, really astir a 400 ground constituent effect to nan Moody's metric successful 2022.

As we look ahead, and we've talked astir this a batch successful nan past, Vogtle surely connected its own, has a important effect connected improving nan wide financial floor plan of nan Company arsenic we statesman to retrieve our finance connected that successful nan future. As we get retired to 2024, erstwhile it's successful service, our metrics are person to 17%, 18%, which are good supra our targets and supply america that benignant of buffer against adversity that we for illustration to person successful our profile.

Durgesh Chopra

Got it. That's ace adjuvant then. So conscionable to beryllium clear, for illustration you would beryllium extracurricular of nan substance balance, you would beryllium adjacent to for illustration 16% connected Moody's ground arsenic of nan extremity of 2022, if you exclude nan substance equilibrium that's connected nan equilibrium sheet?

Dan Tucker

That's right. And arsenic I springiness you that 17% to 18% projection successful nan future, that includes an presumption that we mightiness still person an unrecovered equilibrium that we proceed to collect, but that it's surely been worked down and Vogtle has benignant of overlaid that to amended nan wide profile.

Durgesh Chopra

Got it. Got it. And conscionable 1 hopefully, a speedy one. In 2023 EPS guidance range, tin you conscionable punctual america for illustration what is your presumption for net from nan Unit 3?

Dan Tucker

So, it's astir $0.04 aliases truthful that it contributes successful 2023 comparative to 2022. So that's fundamentally nan presumption of a small much than half nan twelvemonth successful work and past there's -- that's offset somewhat by nan truth that there's immoderate of nan complaint guidelines that won't really gain its afloat return until Unit 4 is besides successful service.

Durgesh Chopra

Got it. And congratulations, Chris and Tom, I overmuch admit nan clip today.

Operator

Our adjacent mobility is from Angie Storozynski pinch Seaport Global. Please spell ahead. Your statement is open.

Tom Fanning

Angie, really are you?

Agnie Storozynski

Good, good. But I will prima it up a small bit. So tin we talk astir guidance succession? So, we're really gladsome to spot nan updates and congratulations to you and Chris, but I'm conscionable wondering really nan Chris' assignment reconciles pinch nan the property argumentation that Southern utilized to person astatine least? That's one.

And past 2 is, we've had immoderate antagonistic headlines astir Alabama Power. There's been a alteration successful CEO. And I'm conscionable fundamentally asking if there's immoderate nexus successful those guidance changes astatine that subsidiary and those media headlines?

Tom Fanning

Yes, sure. The 65 point is it's benignant of a policy. It's not a rule, I don't guess. The Board and I had tons of discussions astir staying connected beyond 65. One of my individual liking has been to thief spot Vogtle through. And I'm still young physically and young astatine heart, I guess, and erstwhile we benignant of transverse that threshold, we looked astatine group like, Wow, Mac, who is, I guess, you're what, a twelvemonth younger than me.

And if you've been astir Chris astatine all, you would cognize that he still acts for illustration a 25-year-old. So it was very easy to spot him proceed successful nan role, and he has occurrence successful his belly and he's done a awesome occupation wherever he's been astir notably astatine Georgia Power, successfully moving pinch our constituents connected nan three-year triennial complaint lawsuit that we do.

So it was easy for america to benignant of say, look, 65 is conscionable a number, truthful agelong arsenic we're capable to lend successful a robust way, that's great. And that's really we did that.

There really wasn't immoderate relationship pinch Mark Crossley, to beryllium honorable pinch you. He had -- I don't know, I want to spell into each that, but he had immoderate issues he wanted to woody with. It was reasonably clear that he wasn't a contender arsenic a successor here, and I deliberation he decided to retire. That was benignant of his prime astatine nan extremity of nan day.

Agnie Storozynski

Okay. So conscionable 1 follow-up connected Chris. So we should expect that Chris is going to enactment successful nan existent spot for nan adjacent mates of years, moreover crosses that 65-year aged threshold?

Tom Fanning

Yes. I'll spell up with. Chris was asked directly. He's committed to 70.

Agnie Storozynski

Okay. Good for you. Okay. So moving connected to Southern Power. So I perceive your comments and I see, obviously, nan simplification and maturation CapEx of that subsidiary. But is it -- I mean, are you trying to conserve successful a consciousness of financing? Is that nan constraint? I mean, I evidently perceive issues pinch profitability of further contract-based renewables and immoderate constraints astir instrumentality availability. But I'm conscionable wondering if nan -- if you were conscionable trying to scheme your spending for Southern Power wrong nan superior building that you presently have?

Tom Fanning

No, Angie. It has thing to do pinch that. It really is 2 things. So Dan is simply a blimpish psyche and he likes to build his scheme without considering upside. So arsenic we've done for years, nan measurement earlier Dan sewage here, we don't put successful spot holders. We deliberation astir them and deliberation astir what effect they could have. Further, we don't adhd thing from Southern Power. And you should deliberation astir contributions from Southern Power arsenic upside to nan guidelines case. It really isn't a constraint of superior building aliases equilibrium sheet.

Operator

We person a mobility from Nick Campanella pinch Credit Suisse. Please spell ahead. Your statement is open.

Nick Campanella

Congrats to each guidance changes. I conjecture conscionable basking functional for Unit 4. You person this bully descent here, Slide 8, looks for illustration extremity of March to, telephone it, precocious June connected HFT. Just going backmost to benignant of nan conservatism comments for illustration wherever do you benignant of spot yourself search towards now pinch nan strategy turnovers and nan statement of sight?

Tom Fanning

The tract moving scheme has HFT successful March. We cognize that things tin hap betwixt now and then, but that's what it shows.

Nick Campanella

Okay. And past tin you conscionable update america connected nan clip statement for nan prudency reappraisal conscionable pinch nan latest benignant of update to nan COD data?

Tom Fanning

It's substance load connected Unit 4. Chris, do you want to opportunity thing more?

Chris Womack

We're scheduled to extremity a prudence connected substance load of 4 -- truthful that's nan schedule and that's nan way we'll take, and that's nan statement agreement we person pinch nan Georgia Public Service Commission.

Nick Campanella

Okay. So mid-summer here. All right. Thank you truthful much.

Operator

We person a mobility from [Paul Fremont] pinch Ladenburg. Please spell ahead. Your statement is open.

Tom Fanning

Hello, Paul, I ever gladsome to person you pinch us.

Unidentified Analyst

Thank you truthful much. Going backmost to -- going backmost to Unit 3. The flow-through connected nan reactor aliases cooling comps, is that a valve rumor arsenic well? Or is that thing else?

Tom Fanning

Still benignant of moving it down. It could beryllium a calibration issue. It could conscionable beryllium nan measurement we measurement nan travel going through. So we're trying to conjecture what it is astatine this point. It is really not practical. They're doing each nan activity basal to get to nan bottommost of that.

Unidentified Analyst

Okay. And nan valve rumor that you talked astir pinch nan DRIP, that's wholly resolved?

Tom Fanning

Thanks. Yes, I talked to Pete Sena, gosh, 11:30 coming and he thought it was taken attraction of. We'll see.

Unidentified Analyst

And past really galore ITAAC approvals do you deliberation you request to move guardant and really do basking functional testing?

Tom Fanning

Zero. We're good.

Unidentified Analyst

Okay, because I thought connected Unit 3, location were a definite number of ITAACs that you thought were nuclear-related wherever you didn't consciousness comfortable doing nan basking functional testing without having those successful hand.

Tom Fanning

No. I deliberation you're remembering substance load there, we're successful awfully bully shape. And if you look astatine wherever we are connected 4 arsenic compared to 3 successful narration to HFT, we are ray years better. Mean we're fresh to go. All we sewage to do is decorativeness nan required tests earlier we get nan power going and tally nan plant. That really is nan captious way astatine this point.

Unidentified Analyst

And past past mobility for me. If you were to do nan further CapEx beyond nan base, does that besides not require equity? Or does equity travel pinch that?

Dan Tucker

Based connected our existent projections, we would still not task immoderate equity. And that's wherever erstwhile I talked astir having that cushion successful our in installments metrics, that plays a large portion of that.

Operator

And we person a mobility from Anthony Crowdell pinch Mizuho. Please spell ahead. Your statement is open.

Tom Fanning

Anthony, really are you?

Anthony Crowdell

Not bad, Tom, really are you doing?

Tom Fanning

Fantastic, my friend.

Anthony Crowdell

Congrats to each and I conscionable person 1 speedy follow-up from Durgesh's mobility connected nan in installments broadside of nan world. Just pinch nan units going successful service, do you deliberation nan in installments agencies little nan downgrade period because of the, I guess, reduced business risk?

Dan Tucker

Yes. Look, Anthony, I ne'er want to speak for nan agencies. I would look for illustration america that aren't presently building atomic units, galore of them person little thresholds. So I deliberation there's surely a beardown statement for that to perchance return place. I won't speak for, but they should.

Operator

And that will reason today's question-and-answer session. Sir, are location immoderate closing remarks?

Tom Fanning

Yes. Really admit you guys joining us. It's an breathtaking twelvemonth 2023 is going to beryllium an breathtaking year. John, we person our yearly gathering wherever I move complete President and CEO, I conjecture I've already turned complete President, but CEO to Chris. Wouldn't it beryllium awesome Chris to person Unit 3 nether our loop by then.

You guys are going to emotion Womack funny communicative I show everybody erstwhile I first sewage this job, I person ever been friends of his but admired his wisdom, intelligence, his activity ethic, his can-do attitude. And nan very first point I did erstwhile I sewage nan occupation was move his agency from down nan hallway correct adjacent to mine.

And I tin show you that Chris has been a thought leader and a partner of excavation passim my tenure. He'll beryllium fresh to spell time 1 to transportation this institution forward, and erstwhile you look astatine group for illustration Kim Greene and Stan Connally and Jim Carr and each nan -- and Jeff group and each nan different group that are successful these positions.

I deliberation it's an awfully beardown team. It's nan envy of our manufacture an embarrassment of riches successful immoderate respects. And I deliberation Southern, particularly post-Vogtle, is going to beryllium a spot for illustration a rocket ship, if I could opportunity that. We're going to beryllium doing great.

So convey you all. It's been a pleasance knowing you each and moving pinch you, and we'll spot you soon. Thank you.

Operator

Thank you, sir. Ladies and gentlemen, that concludes nan Southern Company Fourth Quarter 2022 Earnings Call. You whitethorn now disconnect.

Editor: Naga



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