Southern Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2023

Key Takeaways

  • Adjusted EPS of $0.79 in Q1, beating estimates by $0.09 per share despite a $0.18 year-over-year decline from milder weather and higher depreciation & interest costs.
  • Plant Vogtle Unit 3 reached initial criticality and grid synchronization with full power expected in May/June, while Unit 4 is ~80% through hot functional testing and on track for late Q4 2023 to Q1 2024 in-service.
  • Strong retail growth supported by record economic development, including 4,200+ jobs and nearly $2 billion in Q1 capital investments, highlighted by a $2 billion solar manufacturing plant adding 2,000 jobs in Georgia.
  • Board approved an $0.08 increase in the annual dividend to $2.80 per share, marking the 22nd straight year of dividend hikes and extending a pay-or-beat record since 1948.
  • Second quarter adjusted EPS guidance of $0.75 per share was reiterated, reflecting stable execution amid ongoing regulatory and market factors.
AI Generated. May Contain Errors.
Earnings Conference Call
Southern Q1 2023
00:00 / 00:00

There are 12 speakers on the call.

Operator

Afternoon. My name is Cathy, and I will be your conference operator today. At this time, I would like to welcome everyone to The Southern Company First Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

As a reminder, this conference is being recorded, Thursday, April 27, 2023. I would now like to turn the conference over to Mr. Scott Gammel, Vice President, Investor Relations and Treasurer. Please go ahead, sir.

Speaker 1

Thank you, Kathy. Good afternoon, and welcome to Southern Company's 1st to quarter 2023 earnings call. Joining me today are Chris Womack, President 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. To 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 ks, Form 10 Q and subsequent filings.

Speaker 1

In addition, we will present non GAAP financial information on this to the call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at investor. Southerncompany.com. At this time, I'll turn the call over to Chris Womack.

Speaker 2

Thank you, Scott, and good afternoon and thank you for joining us. I am delighted to be joining you today in my first earnings call as President of Southern Company. I've enjoyed getting the opportunity to interact with many of you over the last couple of months and look forward to meeting with many more of you in the months ahead. I am incredibly excited about the future of Southern Company, the energy industry and the valuable work that we're doing to serve our customers and communities. I'm excited about the opportunities ahead of us and proud to be a part of a team that is making such a significant impact in building the future of energy.

Speaker 2

As you've watched us reposition our deep, talented bench across the system, Our mission remains unchanged, provide our customers and communities with clean, safe, reliable and affordable energy while continuing to keep our customers at the center of everything we do. Also unchanged is our goal to deliver superior risk adjusted total shareholder return, and I believe our financial plan supports that objective. The strength of our value proposition is a function of our customer and community focused business model, the robust economic growth in our service territories and the constructive regulatory frameworks in our states. It is also a function of our discipline as we remain committed to our objectives of strong investment grade credit ratings with a regular, predictable and sustainable dividend policy. Along with our focus on long term execution and value accretion.

Speaker 2

We are executing on our loan on our plans as we and believe We're well positioned to achieve our financial objectives for 2023. Dan, I'll now turn the call over to you for our financial update.

Speaker 3

Thanks, Chris, and good afternoon, everyone. For the Q1 of 2023, our adjusted EPS was $0.79 per share, $0.18 lower than the Q1 of $2,022.09 above our estimate. A major driver for the variance The last year was milder than normal weather as the Q1 of 2023 was the warmest on record in the Southeast. Higher depreciation and amortization and interest expense also impacted earnings for the Q1 compared to last year And we're somewhat offset by constructive state regulatory actions. A complete reconciliation of our year over year earnings is included in the materials we released this When looking at adjusted EPS impacts compared to our estimate for the quarter, the main drivers were a strong start for our state regulated natural gas and continued strong electric and gas customer growth.

Speaker 3

Given the mid February timing of our last earnings call, We were able to factor milder than normal January February weather into our estimate for the quarter, to weather was not a major driver of our performance versus our estimate. You may recall that our adjusted earnings in the first half of twenty twenty two We're significantly better than projected due to weather and other market driven factors. Our early 2022 outperformance who supported our full year adjusted EPS performance and enabled us to accelerate maintenance activities in several areas of the business. Those initiatives had us well positioned with additional spending flexibility entering 2023, such that we expect the significant weather impact we experienced in January February should be manageable over the remainder of the year, assuming a return to more normal weather throughout the balance of the year. Turning now to retail sales and the economy.

Speaker 3

In the Q1, weather normal electric retail sales were 0.4% higher than the Q1 of 2022. This increase reflects stronger residential and commercial sales from continued robust net in migration to our service territories, to a strong labor market and a return to more normal business trends. Industrial sales for the quarter were down 1.6% as we are beginning to see weakness in housing related sectors such as stone, clay and glass, lumber and textiles to the inflationary pressures and higher interest rates. Half of the industrial variance for the quarter compared to last year Can be attributed to the closure of a caustic soda manufacturing facility in Alabama. Excluding the impact of this single customer, Industrial sales were down approximately 0.8%.

Speaker 3

In a trend that continues to differentiate our Southeast service territories from many other areas of the country. We once again saw record levels of economic development activity with job and capital investment announcements at all time highs in the Q1. We are beginning to see supplier announcements made during the quarter totaling over 4,200 jobs and nearly $2,000,000,000 in capital investment. We expect additional automotive supplier announcements in the coming months. Beyond the automotive industry, Q Sales recently announced a new $2,000,000,000 solar panel and component manufacturing facility in Georgia, which is expected to create 2,000 jobs.

Speaker 3

Additionally, the Port of Savannah continues to set records, boasting its highest national market share ever in 2nd busiest February on record. The port continues to expand capacity, including the recent announcement of the addition of 55 electric cranes, which are expected to eliminate 500,000 gallons of diesel consumption and related emissions per year. Before I turn

Speaker 4

the call back over to Chris,

Speaker 3

I'd like to call your attention to our recent dividend increase. At its last meeting, the Southern Company Board of Directors approved an $0.08 per share increase in our common dividend, raising our annualized rate to $2.80 per share. This action marks our 22nd consecutive annual increase and for 76 consecutive years, Dating all the way back to 1948, Southern Company has paid a dividend that was equal to or greater than the previous year. This remarkable track record supports Southern Company's value proposition. And lastly for me, our adjusted EPS estimate for the 2nd quarter It is $0.75 per share.

Speaker 3

Chris, I'll turn it back over to you.

Speaker 2

Thank you, Dan. Before taking your questions, I'd like to first provide an update on recent progress on Plant Vogtle Units 34. Importantly, the projected completion timeline and capital cost forecast Both units are unchanged from the updates that we provided last quarter. Since that time, we've seen sustained progress consistent with our expectations for each unit. At Unit 3, we've achieved initial criticality in March and successfully synced to the grid earlier this month.

Speaker 2

We continue to work through final startup testing and commissioning and are currently performing testing at the 50% thermal power plateau. This testing is expected to continue in the coming weeks with extensions to higher power plateaus and forced trips to test the unit's safety systems. Following completion of this final testing sequencing and consistent with our long term plans, we expect Unit 3 to enter into a brief maintenance to the outage window before returning to full power. After the successful completion of all appropriate pre operational and power extension testing as well as any necessary fine tuning. Unit 3 will be ready for commercial operations.

Speaker 2

We continue to project placing Unit 3 in service in May or June of 2023. Turning now to Unit 4. Substantial progress continued throughout the last quarter, with hot functional testing commencing in March, with lessons learned from Unit 3 continuing to benefit our execution on Unit 4. Hot functional testing is approximately 80% complete. We have already achieved peak plan output of the test and are currently in the process of cooling the unit back down with progress throughout the test that has been consistent with our plan.

Speaker 2

We project to complete hot functional testing in the coming weeks to be followed by to a planned inspections and surveillance along with the middle of our final I tax receipt of the 103 gs finding from the NRC and fuel load later this year. Only 6 systems remain for turnover, which is testing for Unit 4, and we continue to project an in service date between late Q4 2023 and the end of the Q1 to 2024. We look forward to sharing our exciting progress in the weeks months ahead as we bring these units online to provide reliable carbon free energy to the benefit of our customers in the state of Georgia for decades to come. In closing, I'd like to highlight that Southern Company was named the top utility on Forbes Magazine Best Large Employers in America 2023 rankings. We rank nearly 100 places higher than next industry peer in the top 15 of the 500 large employers ranked for the 2nd consecutive year.

Speaker 2

Being recognized amongst the best in the nation once again is an honor. This accolade is particularly gratifying because it is directly based on employee feedback. We are committed to creating a workplace where all groups are well represented, included and fairly treated within all levels of the organization and that everyone feels welcome, valued and respected. At Southern Company, we aspire to be a leader in our industry. As such, we will continue to strive to create to the best workplace possible for our 1,000 of team members who work tirelessly each and every day to provide world class service to the customers that we have the privilege to serve.

Speaker 2

Thank you for joining us this afternoon. Operator, we are now ready to take questions.

Operator

Thank You will hear a 3 tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, Please press the 1 followed by the 3. Again, to register for a question, it is the 1 for on your telephone. And our first question comes from the line of Steve Fleishman with Wolfe Research. Please proceed.

Speaker 2

Hi, Steve. Good afternoon.

Speaker 5

Hey, good afternoon, Chris. Congrats on your first call and new role. Thank

Speaker 3

you.

Speaker 4

You bet.

Speaker 5

And hi to Tom out there. I'm sure he's listening. But the just on Could you just remind us for the prudency filing in Georgia when that would when that comes and roughly When that's going to be scheduled this year?

Speaker 2

It is scheduled to come as we enter fuel load on Unit 4. Right now, we're looking to for units for fuel load to occur in the July timeframe. So we're working we'll work with the commission and the staff on moving through that process, but it will get started as we enter fuel load on Unit 4.

Speaker 5

Okay. And take like, I think most things take 6 months pretty much? Yes.

Speaker 2

We expect 6 months It's the time frame we expect today.

Speaker 5

Okay. And then I think I know you mentioned the remaining process For Unit 3 startup, but just the testing so far, I mean, obviously, you kept the timeline, but so far in the testing, Is it fair to say everything's gone as planned? Are there any issues that have come up? Just any color there?

Speaker 2

And Steve, I think as you've seen before, things do come up. I would say testing has gone very well. We've experienced some trips and the systems operated as they should, but we worked our way through it and but we continue to proceed and move ahead. So far so good, but we know there's first time startup, there's always issues. This is why we test, and we're focused on the secondary side.

Speaker 2

But I'd say so far so good, but we continue to Testing is always a process that we'll go through to make sure we're ready for commercial operation.

Speaker 5

Yes. Okay. Thank you very much.

Speaker 2

Thanks, Steve.

Operator

And our next question comes from the line of Shar Pourreza with Guggenheim Partners. Please proceed.

Speaker 2

Hey, Shah, good afternoon to you, my friend.

Speaker 6

Good afternoon. Chris, you guys Chris did, you guys recently just Around the 2024 guidance, you kind of lowered it on the back of ongoing inflation and interest rates. I guess, how are you seeing things Develop now and do you seek kind of opportunities to manage your exposure like we saw with the prior convertible note you issued in February, Got a bit of a better sales outlook today. I guess, what are some of the pushes and takes since you revised that 2023 guide? It seems like there's some incremental Tailwinds here.

Speaker 6

Thanks.

Speaker 2

Shar, you asked about 23 or 24?

Speaker 5

24.

Speaker 2

Okay. So I'm going to let me start and then I'll kick it to Dan. We moved the lower end of our band down because as we pushed out I expect to start up of commercial on Unit 4. We moved that we lowered the range down to 395. So that was based on the push on the schedule for Unit 4.

Speaker 2

Dan, you want to comment on any other aspects of guidance?

Speaker 3

Yes. And just following on to what Chris said, once we have clarity, which again will be the end of this year, early next year on Unit 4, we'll narrow that 2024 guidance down to something that's more akin to what we typically do around a $0.10 range or so based on the actual in service date. All the other moving parts you mentioned, Shah, I mean, we kind of are where we were. We are executing a way to make sure that we're managing where we need to. We'll continue to be creative and thoughtful around how we're financing, particularly at the parent company.

Speaker 3

I think the convertible deal was a tremendous Success. We'll see what other opportunities we have, not necessarily that specific instrument, but just to be opportunistic in the way we do that. And then from a cost Everyone is seeing pressures and we are no different, but we've got a lot of efforts underway to make sure that we're running the business as efficiently as we can in a way that continues to support that guidance range.

Speaker 6

Got it. And then just, Chris, I'm kind of curious maybe just your overall thoughts on the cost side, because Southern doesn't really have a stated cost cutting target like some of your peers, Despite obviously you guys managing O and M fairly well. I guess looking at things kind of from a fresh lens, are you seeing opportunities to cut cost incremental to your current plan, maybe at the whole co level like shared services or even at the OpCos. I mean, I guess, is there any opportunities you see as a new CEO that could be additive to plan as we're thinking about maybe further streamlining the business?

Speaker 2

Yes. And Charred, I would say it's a wonderful question. I'd build on what Dan has said. I mean, we will continue to look at how we can run this business more efficiently. I mean, there are opportunities to create shared service, opportunity to find efficiencies in places.

Speaker 2

We will do that. As you know, there's a lot of conversation and interest and we take it very seriously the issue of affordability. And so we will continue to find ways to put downward pressure on our pricing, find ways to to look at the interest rate and inflation implications, but look to find ways to make sure my O and M perspective that is either flat or declining over our forecast periods. So we will continue to do that and pursue those kind of opportunities. And we've done it in the past and we'll continue to do it in the future.

Speaker 3

And I'd say in addition to particularly the shared service opportunities Chris mentioned, one of the other great opportunities we have, which you'd hope we would have is to to really optimize how our internal resources are deployed between operating expenses and capital investments. So We're certainly doing everything we can to optimize the way they're deployed to focus on our capital spend and reduce costs at the same time.

Speaker 6

Terrific. Thanks guys and congrats Chris on your first call of many. Appreciate it.

Speaker 2

Again, Shar, thank you very much.

Operator

And our next question comes from the line of Ross Fowler with UBS. Please proceed.

Speaker 2

Hey, Ross. Good afternoon, Chris.

Speaker 7

Good afternoon. Afternoon, Dan. So Dan, I just want to go through the seasonality again. You kind of brought it up in your prepared remarks. I just want to make sure I fully understand your drivers there.

Speaker 7

Can you hear about a little over $2 in the first half of '22 and you've got a little over $1.50 in the first half of 'twenty three. So if I heard you correctly, you said that, That outperformance in 2022 allowed you to pull a lot of O and M forward into the year. So that's part of it. But There's other pieces here too, I think. 1 would be a reduction in part of the Vogtle penalty once Unit 3 goes in.

Speaker 7

And then I think there was some sharing outside the band in Q4 of last year. So other than those three pieces, is there anything I'm missing around sort of getting back into the guidance range with a better second half number this year versus last.

Speaker 3

Yes, not in terms of getting back, but just in terms of making those comparisons Since year over year Ross, I think the other important moving part that we saw in the first half of last year that really helped us get up to that strong start with earnings that were really driven by where energy prices were. So not only on our regulated side, we had some commercial industrial Saying that benefited from that, but also on the Southern Power side, got off to a great start just because of where market energy prices were and allowed us So when you're doing the year over year comparison, that will be a difference. Big thing that you brought up that's Just not as obvious always looking at this is the kind of rebates or refunds back The customer's notion that was a significant element of the second half of last year. If you combine all of our jurisdictions in terms of either what was accrued to refund back or what was put into regulatory reserves that we have this reliability reserves in some of our jurisdictions. That was $0.33 just in the 4th And so that's a pretty significant year over year reconciling item that won't necessarily be there this year, but we'll still be able to support that 3.6 It is a midpoint.

Speaker 7

Thanks for that, Dan. And then on the industrial sales decline, you mentioned about half of that was sort of A one off item due to the Cox Lake Soda Facility. The rest was kind of like seen in lateral housing related sectors. Maybe ex housing, what are you seeing for the economic backdrop currently in that context?

Speaker 3

Yes. Still and I want Chris to kind of add on to this, but just from an overall sales perspective, still seeing year over year growth in a lot of sectors. There is a bit of slowing going on, but the overall strength here in the Southeast continues to show itself. Chris, you want to add anything there?

Speaker 2

Yes. And so We look at the economic development pipeline here in the Southeast, which remains to be robust. I mean, I look at Q1 of 'twenty three versus Q1 of 'twenty two announced projects expect like 10,000 plus 10,000 jobs and some $4,000,000,000 of investment here in Georgia and then Alabama also sees increases around EV and battery supply chain. And the pipeline continues to be very full. So We continue to be excited about the economic activity, the economic development pipeline from population growth in migration to The customer growth, we saw some 11,000 on the electric side, some 6,000 on the gas side.

Speaker 2

So we continue to see very positive factors that some people say there may be a recession, but we think here in our territory may be lessened because of this ongoing continuing economic strength and Economic activity that we continue to see.

Speaker 7

That's great, Chris. And thanks for that, Dan. And maybe this is an unfair question, but I'm going to pose Anyway, how do you think about I mean, we've seen in the press this week an EPA power plant rule potentially coming around natural gas and emissions reductions. How do you think about that in terms of sustainability achievement versus Affordability and reliability, because natural gas is definitely needed for both of those things as we walk through the energy transition. What are the risks and opportunities around that type of regulation?

Speaker 2

Yes. And let me break that up in 2 parts. I mean, I think in terms of the proposal, you've seen the process before and that will go through a number of different iterations and if when there is a final rule, We'll assess it in understanding and figure out what it means to us. I mean, we have been pursuing our fleet transition, focused on sustainability and with a real commitment of balancing affordability with sustainability and moving to our net zero. I mean, and we'll continue to do that as we go through this fleet transition.

Speaker 2

So our path will continue. And so whenever a new rule comes out, we'll take a look at it. I mean, I would also say, I think for the economy, natural gas is very important. Natural gas It's important to this country and to the economy, to a lot of regions that cannot, from an affordability standpoint, make a transition to all electric. And so I think from a national energy policy standpoint, I think it's important to recognize the importance of natural gas as we go forward.

Speaker 2

So that'd be my response to that

Speaker 7

question. Yes. Couldn't agree more, Chris. Thank you very much.

Speaker 5

Thanks Ross.

Operator

And our next question comes from the line of Julien Dumoulin Smith with Bank of America. Please proceed.

Speaker 2

Hey, Julian. How are you this afternoon, my friend?

Speaker 4

Hey, absolutely. Thank you for the time, Chris. Appreciate it. Nice to chat with you. Congrats again.

Speaker 2

Thanks, Matt.

Speaker 4

So listen, absolutely, it's nice to have you. So with that said, look, I want to pivot back to the credit conversation. As we kind of pivot out of the U3, U4, you look at the timelines getting a little bit narrower here. What are you guys thinking today about the prospects of credit improvement? What kind of metrics would you want to target?

Speaker 4

Obviously, you've seen some gyrations there to the course of construction. How far do you want to go on that improvement side? What does that mean in terms of like targeted broad metrics? Again, I get that the rating agencies have different metrics They target and then ultimately, what does that translate to in terms of target FFO for you guys and the timeline they're in, right, as you look at this in service?

Speaker 3

Yes, Julien, it's Dan. So look with once Vova 3 and 4 is in service reflected in rates from a cash flow perspective, and we've talked about this before, it's about a $700,000,000 improvement in our operating cash flow and thus to improvement in FFO. From an FFO to debt perspective, what that means is given The rest of our business combined with that improvement, we should be comfortably in a, Let's just call it 17 ish zone from an FFO to debt. It could be as high as 18 in years, could be in the high 16s, but comfortably above certainly current ratings thresholds. And what I've continued to articulate is an objective to have all of our regulated utilities in the A category and our parent company at BBB Plus, and I think we can achieve that without having to do anything but execute.

Speaker 4

Right. But not a further improvement in terms of the underlying metrics per se?

Speaker 3

Absolutely.

Speaker 8

Okay.

Speaker 4

And then, sorry, if I can pivot one more subject here, just to touch on Georgia and Georgia Power, specifically around solar opportunities. I know that Ira has unlocked certain opportunities. I know that this is in flight and in process, so maybe not necessarily right. But prospects for investing on that front, obviously, you've had the Southern Power placeholder, but I'm focused more specifically on solar at Georgia Power and or any of the other OpCos today, post IRA And given the opportunity.

Speaker 2

Yes. And Julian, as you know, we have opportunities as a result of the 2022 Integrated Resource Plan. But also with the Inflation Reduction Act, we think as a level of the playing fields between from tax policy, it offers us the opportunity to own renewables ourselves. And so our teams are looking at the opportunities and we'll be working with the commissions to pursue those opportunities for us to build and own more renewables as we go forward, taking advantage of the opportunities that the Inflation Reduction Act affords us. And the opportunity we have is not just looking at the least cost, but also but who's the best cost owner of these projects going forward.

Speaker 2

So It's a wonderful opportunity for us. But also, I think as you mentioned, there are also opportunities for Southern Power, as we go forward. So They're wonderful opportunities for us as we go forward and we're looking forward to fully investigating and executing around them.

Speaker 4

Got it. But maybe in the next quarter or so, we'll get a little bit more detail there?

Speaker 2

We'll keep you posted.

Speaker 4

All right. Excellent. We'll leave it at that. Thank you, guys. Good luck.

Speaker 4

All right. We'll see you soon.

Speaker 2

Thanks, Julian.

Operator

And our next question to the line of David Arcaro with Morgan Stanley. Please proceed.

Speaker 2

Hey, David. Good afternoon.

Speaker 9

Hey, there. Good afternoon. Thanks so much for your time. A couple of quick questions on the Vogtle units. I was wondering when would we expect Unit 3 to be running at full capacity?

Speaker 9

We've seen it ramping up and down, getting to 50% power. Wondering when we might see it at full capacity. And then Just on that Unit 2, have the I think you touched on this before, but has the testing and running so far been going smoothly enough to not push out any like incremental delays within the May to June timeframe.

Speaker 2

No. And so David, we're not announcing any schedules or cost estimate increases. 100% power is sometime in May. I mean, we're working through the process. We're doing all the testing and we're ramping up.

Speaker 2

I would say, look for sometime in May to get to 100% power.

Speaker 9

Okay. Got you. Thanks. And then on Unit 4, just during hot functional, I guess similar question. Have you seen any Issues pop up during that testing phase that would add incremental time even within the 4Q to 1Q twenty twenty four window.

Speaker 2

And I think as we said, we're about 80% complete on hot functional on Unit 4. And I think it is clear that we have taken lessons learned from our Unit 3 experience and there are no issues to note. And so I'd say so far so good. And I mean if you recall, you may recall Unit 3 took us about 94 days. And so we're now 80% complete.

Speaker 2

And if we stay on schedule sometime in early May, we will conclude hot functional testing and then look toward critical path items of ITACs and testing and looking toward fuel load sometime in July. So, So far so good. So that's kind of just that's where we are. But we've been the lessons learned from Unit 3, Unit 4, I think are clearly reflecting and showing up as we go through hot functional testing on Unit 4.

Speaker 9

Okay, great. That's good to hear. Thanks so much.

Speaker 2

Thank you very much.

Operator

Our next question comes from the line of Durgesh Chopra with Evercore ISI. Please proceed.

Speaker 2

Good afternoon.

Speaker 8

Hey, good afternoon, Chris. Thanks for taking my question. Just first, Chris, you talked about the maintenance outage at Unit 3. I just want to confirm that's just standard process, right? That's not an added step

Speaker 2

to take on Go ahead, Durgesh. No,

Speaker 8

that's it. Please go ahead.

Speaker 2

Yeah. No, you're right. I mean, it's a standard outage. I mean, there are some testing equipment that has to be removed and some things that we have learned. And so we'll fine tune some things, maybe some remediation that will occur, probably about a 10 day maintenance outage.

Speaker 2

But yes, I mean, it's standard and was expected.

Speaker 8

Perfect. Thank you for clarifying that. And then maybe I can just pivot to the Georgia Power under recovered fuel filing. I believe you made that in February. Just Any initial stakeholder feedback there?

Speaker 8

I know at the last call, we talked about perhaps offsetting some of that balance with lower gas prices going forward as we see it. Just anything you can share with us on that front would be great. Thank you.

Speaker 2

Yes. As you may know, we reached the stipulation with the staff and we're looking at about a 12% price increase on retail rates over 3 year period to recover that under recovered fuel balance and that would take effect in June And that is lower than what our initial request was and 30% less than what we expected. And I think As we look at this outcome, this stipulation, it reflects kind of our sensitivity and our interest in paying attention to affordability and recognizing that we must recover this unrecovered fuel balance, but how do we do it in a manner that minimizes the impact on customers. And so That's kind of where we are. More hearings and considerations take place, but the rates will take effect starting in June.

Speaker 8

Perfect. Thanks so much.

Speaker 2

You're welcome. Thank you, Daraghish.

Operator

And our next question comes from the line of Sophie Karp with KeyBanc. Please proceed. Hi, Sophie. Good afternoon.

Speaker 2

How are you doing? Hello. Good Thank you.

Speaker 10

Thank you. Thank you for taking my question. Most of my questions have been answered actually. Let me just maybe throw this one at you guys. So with Bogle moving towards The completion Unit 3 and Unit 4 can remain on track to be completed in the direct line of vision.

Speaker 10

Would you take some time in the medium term to have another look at the businesses that you own and maybe figure out which ones Could be recycled capital wise and optimize the business mix or are you quite happy with what you got right now?

Speaker 2

I mean, I think you kind of speak to it, but as we have success on Pogo 34, it does give us the opportunity to to unlock the field value of this company and kind of regain our premium valuation. And I mean, we will look at our business, and we'll look at all parts of it in terms of from a buyer and seller perspective. And the thing about it is, I say, we've got and we will always look our hand over. We feel real good about the cards that we have. I mean, we'll always do our homework and look at what others have extracted in the marketplace, but we'll also look and see some things we can do better.

Speaker 2

We don't have any equity needs. I mean, we're in a very, very good spot. And so I just think it's an opportunity for us to really unlock full value and the full potential of this company as we go forward.

Speaker 10

Thank you so much. That's all for me.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Angie Storozynski with Seaport. Please proceed.

Speaker 2

Hi, Angie. How are you?

Speaker 11

Very good. So I'll ask a different question. So would you actually be willing to acquire some assets now that you have of spinning a clean slate. You mentioned you have no equity needs. You have a strongly improving cash flow and all our assets available for sale.

Speaker 11

For now, the way we look at you guys, you basically sold for roughly to the sector average earnings growth, which I cannot believe that you would be happy with.

Speaker 2

And Angie, I've been I'll tell you and I think I said it on the last answer to the last question. We are excited about the progress we're making through on these Vogtle units and we're looking forward to bringing both units online and getting those units completed. Once we do that, I mean, we're really going to focus on really making sure that we are unlocking the full potential and the full opportunities for this business that we have and we are large enough to do this as a standalone. At the same time, we're continuing to always look at our look at the market, look over our hand, as I said, from both a buyer and seller perspective. We'll always continue to do our homework, But we feel good about where we are.

Speaker 2

5% to 7% is good enough for us to be the best risk and adjusted Our return in the industry and we feel good about where we are.

Speaker 11

Okay. That's all I have. Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Ashar Khan with Voorheesen. Please proceed.

Speaker 10

Ashar, how are you today? Hi. Pretty good. Congratulations. My questions have been answered.

Speaker 10

Thank you.

Speaker 2

Thank you very much. Have a good day.

Operator

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

Speaker 2

Guys, we thank you for being with us today, and we look forward to speaking with you in the future. But otherwise, operator, thank you very much for the call.

Operator

Thank you, sir. Ladies and gentlemen, this concludes The Southern Company 1st quarter 2023 earnings call. You may now disconnect. Have a great

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