Southern Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 15, 2024

Key Takeaways

  • Plant Vogtle accomplishments: Unit 3 has delivered over 5,000,000 MWh of carbon-free energy and Unit 4 achieved initial criticality, on track for commercial operation in Q2 2024.
  • Strong earnings: 2023 adjusted EPS was $3.65 at the top of guidance, with 2024 EPS guidance of $3.95–$4.05 and long-term growth of 5%–7%.
  • Capital plan: A $48 billion five-year plan (95% in regulated utilities) supports ~6% annual rate base growth, funded with ~35% new equity issuance.
  • Supply growth outlook: Retail sales are projected to grow ~6% annually (9% at Georgia Power) from 2025–2028, driven by data centers (~80% of new load), offering potential rate relief.
  • Sales headwinds: Weather-adjusted retail electric sales fell 0.4% and industrial sales declined nearly 2% in 2023 due to record mild weather and sector slowdowns.
AI Generated. May Contain Errors.
Earnings Conference Call
Southern Q4 2023
00:00 / 00:00

There are 17 speakers on the call.

Operator

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 4th 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, February 15, 2024. I would now like to turn the conference over to Mr. Scott Gemmill, Vice President, Investor Relations and Treasurer. Please go ahead, sir.

Speaker 1

Thank you, Malika. Good afternoon, and welcome to Southern Company's 4th 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 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 ks and subsequent securities filings.

Speaker 1

In addition, 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.

Speaker 2

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 Plant Vogtle Unit 3, The first newly constructed nuclear unit in the United States in over 3 decades. Since its July 30th in service date, Unit 3's performance has exceeded our expectations delivering over 5,000,000 megawatt hours of safe, reliable, Carbon free energy across Georgia. Other noteworthy items for 2023 included Constructive resolution of the Vogtle 3 and 4 prudence process, resolving all issues of reasonableness, prudence and cost recovery.

Speaker 2

Successfully completed construction and commissioning for a brand new 7 20 Megawatt combined cycle plant on schedule and on time at Alabama Power's Plant Berry, acquired 2 new solar projects at Southern Power, which once construction is complete, we'll add an additional 3 50 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 2,007 levels by 2,030, achieving a 49% reduction in 2023, earned the National Accounts Award for outstanding customer engagement by the Edison Electric Institute and top honors from JD 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 continue to excel at the fundamentals and started this year strong as evidenced through our preparations and execution during January's winter storm, Heather.

Speaker 2

When electricity demands reach all time winter peaks and Southern Company Gas' system continued reliably serving customers throughout severe weather conditions across its 4 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 Vogtle 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 began the self sustaining nuclear reaction to create heat for steam production.

Speaker 2

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

Speaker 3

in the

Speaker 2

Q2 of 2024. Our 2024 adjusted earnings per share guidance range, which Dan will get you all shortly, assumes Unit 4 achieves commercial operation in April. Dan, I'll now turn the call over to you.

Speaker 4

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 nonfuel O and 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 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.

Speaker 4

Turning now to electricity sales and 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 4 year total in decades.

Speaker 4

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 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 the same period.

Speaker 4

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 derisk 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 Vogtle 3 and 4 Construction EPS projection with an initial and reasonably wide 2024 guidance range.

Speaker 4

It is perhaps the greatest of understatement 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, 100 of 1,000,000 of dollars higher than any of us assumed 3 years ago. Additionally, relative to our projection in early 2021, The projected in service date for Vogtle 4 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 $6,000,000,000 higher, While lower O and M expenses and higher sales are projected to contribute 100 of 1,000,000 of dollars more than previously projected to help maintain affordability and help pay for those investments.

Speaker 4

We estimated adjusted earnings of $0.90 per share for the Q1 of 2024. Our capital investment plan continues to be well over 95% attributable To our state regulated utility businesses, the current 5 year capital investment forecast totaling $48,000,000,000 reflects a $5,000,000,000 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.

Speaker 4

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 In 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 and the 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 5 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 the historical trend of capital increases to continue going forward.

Speaker 4

On its own, our capital investment forecast of $48,000,000,000 supports annualized state regulated rate base growth of approximately 6%, providing a solid foundation for our long term outlook. Any upsides 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, The company must also have high quality credit. As we near completion of Vogtle Unit 4, the reduction in major project construction risk And the improvement in our FFO should strengthen and meaningfully improve our credit profile 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.

Speaker 4

These plans typically provide approximately $350,000,000 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 at 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.

Speaker 4

Chris, I'll now turn the call back over to you.

Speaker 2

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.

Speaker 2

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 in 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 has served to further strengthen what we believe to be the deepest and best bench in the industry.

Speaker 2

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 Thank you again for joining us this afternoon and for your continued interest in Southern Company. Operator, we are now ready to take questions.

Operator

Thank you. Our first phone question is from the line of Shar Pourreza with Guggenheim Partners. Please go ahead. Your line is open. Hey,

Speaker 5

Shahriar. Welcome. Hey, Chris and Dan. Good afternoon. Just quickly on the new guidance that you rolled forward.

Speaker 5

Does the new $0.24 estimate range still include a Vogtle charge? Should we be adding back $0.05 or so to grow off the 5% to 7% like you've talked about in the past and sort of that new 6% rate base growth that 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.

Speaker 4

Yes. Thanks for the question, Shar. And I know there's a lot of focus on this. I think we're always fascinated with the precision with which everyone wants Then nail all this down. So let's start with the guidance range.

Speaker 4

Yes, it absolutely includes Impacts from Vogtle 4 not only being in 24 at all, but certainly going into as we've assumed in the guidance range April. I mean if Add all that up, that's $0.08 of incremental impact on 2024 relative to what it would have been if the project in line in 2023. And 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.

Speaker 4

You have To maintain the system, you've got to make sure you're prioritizing service to customers. And so that flexibility is limited. We're using it this And that will diminish what we have the opportunity to do going forward. But also, I think what's not factored in as a couple of other important nuances. 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.

Speaker 4

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 20252026. When it comes to the rate based growth, Look, we were at 6% last year. We just added $5,000,000,000 of capital to the plan.

Speaker 4

We didn't add all the capital that we see as possible. That kind of incremental capital additions opportunity still exists. So yes, our ability to grow rate base and Yes, 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.

Speaker 5

Got it. Okay. That's helpful, Dan. And then just lastly, I know one of your peers has spoken pretty extensively on sort of nuclear PTCs and Obviously, expects to receive 100 of 1,000,000 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 front, is it part of any of your credit metrics or funding plans?

Speaker 5

Thanks.

Speaker 4

Yes. Thanks, Shahriar. 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?

Speaker 4

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 how our metrics or earnings look.

Speaker 5

Terrific. Thank you guys. Super helpful, Dan. Really, thank you.

Speaker 2

Yes, you bet. Thanks, Yahar.

Operator

Thank you. Our next question is from the line of Steve Fleishman with Wolfe Research. Please go ahead. Your line is open now.

Speaker 2

Good afternoon, Steve. Yes.

Speaker 6

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 1st full year of both units running? When do you expect to be there?

Speaker 4

Yes. 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 as a sit 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 Vogtle 4 is in service.

Speaker 4

2024 with Vogtle in service and 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 at 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.

Speaker 4

It's 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 5 year forecast, we get kind of in that mid-sixteen towards 17 range. But Again, every year in the 5 years is an improving story and still hundreds of basis points above our threshold.

Speaker 6

Great. Thanks. And my other question, just the I mean, can you just talk to this growth, Particularly, I guess, in Georgia, the 9% a year sales growth, which is at least, seems Kind of unprecedented at least for my last time. And how are you? Yes.

Speaker 6

Go ahead, Chris.

Speaker 2

No, Go ahead, finish your question.

Speaker 6

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

Speaker 7

is this a conservative risk adjusted number or how

Speaker 6

should I think about that? How are you doing it?

Speaker 8

Yes. For your peers, it's so huge.

Speaker 2

Yes. It is an unprecedented growth that we continue to witness from economic development activities. And so, yes, 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 Or looking and making site visits, but there's been some demonstrated commitment that they will in fact be building a project in the state.

Speaker 2

So we go through those thresholds before we make those filings in terms of having some certainty that these projects are in fact real. We've just seen unprecedented economic development activity, say, for the past 3 years, And we continue to have an aggressive pipeline. But as we go to the commission for this updated IRP, We just factored in those companies, those businesses that have clearly demonstrated and taken actions that we think of That shows some firmness in their participation in their operating businesses in the state.

Speaker 4

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, 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.

Speaker 4

Yes.

Speaker 2

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

Speaker 6

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

Speaker 2

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

Speaker 7

Okay. Thank you.

Speaker 2

Thanks, Steve. Have a good day.

Operator

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.

Speaker 2

Thanks so

Operator

much for taking the questions. Hey, how

Speaker 9

are you? Thank you. Maybe just to start on the new 5 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?

Speaker 4

Yes, Carly, thanks. It's a great question. So, and I think I alluded to this few minutes ago. It really is about the velocity and magnitude of this growth that we just kind of characterized for Steve. It's right in front of us.

Speaker 4

These resources are needed sooner than later. And so we think there's It was reasonable to kind of break trend for us a little bit and get slightly ahead of 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.

Speaker 4

And what we've included in the capital plan is essentially the new combustion turbines. There's 3 of those and then 2 specific storage projects that are kind of located near military bases at Moody's and Rob is Air Force Base. That leaves 100, 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 another process coming in 2025.

Speaker 4

So there may be A degree of clarity in April, there may be further clarity coming out of the 2025 process. And as those play out, we'll continue to obviously keep the investment community apprised and update our projections accordingly.

Speaker 9

Great. Thank you for that. That's super helpful. And then maybe just as we think about executing on Vogtle 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, you talk a little bit about some of the levers that you might have to pull there to sort of offset those impacts?

Speaker 2

Yes. Let me start by saying with initial criticality achieved yesterday, we continue to progress through testing and startup. The next major milestone is sinking to the grid and that could occur later this month. We expect Unit 4 completion during the Q2. And as we take into account the experiences we got From last year with our Unit 3, as we look at moving through Unit 4 and we could have worked through these units, how we work 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.

Speaker 2

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.

Speaker 4

Yes. And Carly, I'll speak to the flexibility. I mean, obviously, I mentioned earlier, we're kind of already deploying some of that flexibility to address what we expect to be as here today in April in service because beyond that, we've laid out as roughly $0.03 for every month. But that's partially why we have a range, right? I mean it's a $0.10 range out there.

Speaker 4

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.

Speaker 9

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

Speaker 4

You bet, Karl. Thank you.

Operator

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

Speaker 8

How are you doing, Julien? Good afternoon, team.

Speaker 10

Hey, pleasure guys. Thanks so much for the time. Appreciate it. Hey, couple of 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.

Speaker 10

Are you seeing an improving ROE in the outlook? Or is this really underpinned at this point by just the IRP and to what 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 1, if you will.

Speaker 4

So I'm not sure where you're headed with improved ROE Just improving returns from

Speaker 10

the additional sales, if you will.

Speaker 4

Certainly not Improving returns from overall, say, regulated utility perspective from a 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, Julien, 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 expectation for additional success from an economic development perspective so that we do stay ahead of this from a resource perspective.

Speaker 4

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.

Speaker 10

Yes, 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 pro form a for Vocal 4 coming up?

Speaker 4

No, nothing's changed in terms of what I believe the financial profile supports, which again my objectives, I've stated this before, I think our parent company being at BBB plus kind of the A category for all the utilities, 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 100 basis points above any of those and every year

Speaker 10

improves. Wonderful. And then quickly on the reactor cooler pumps, I know 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 that 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.

Speaker 10

I know there's some language in the care on it.

Speaker 2

Yes. And so, yes, 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, we made sure there were not any similar issues, but we think we're in pretty good shape with the pumps as we go forward.

Speaker 10

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

Speaker 2

Thank you.

Operator

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

Speaker 10

Hey, Nick.

Speaker 11

Hey, good morning or good afternoon rather, sorry.

Speaker 12

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 3 pumps in the K and

Speaker 8

Just what's the actual risk of in

Speaker 12

your lines and when is that no longer going

Speaker 8

to be an issue?

Speaker 2

I guess, 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 pump, the new pump that we installed. And we think we just have a good handle on these pumps. And I think you consider the run time.

Speaker 2

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.

Speaker 4

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

Speaker 8

Absolutely. Yes, that's helpful. And then just

Speaker 12

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 4th quarter update this time next year or is there a mid period opportunity in the cards?

Speaker 4

Look, none of these regulatory outcomes will be 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 2 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.

Speaker 4

And the other interim opportunity that will continue to exist is 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.

Speaker 2

But you'll also see great transparency through this process, 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 RFP processes before. So those processes will continue as we go forward and you'll see real time kind of how it unfolds.

Speaker 11

All right. Thanks so much.

Operator

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

Speaker 2

Hey, David. Hey, David.

Speaker 3

Thank 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, 6% load growth, 6 percent rate based growth, is that enough to kind of handle the system strain, the generation need, just on the T and D system over time or is there potential upward growth rate pressure on that rate base growth number as you get into later years of this decade?

Speaker 4

Yes. 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. We're not trying to get too far ahead of any regulatory processes. We'll get these decisions in April.

Speaker 4

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.

Speaker 3

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 is A lot of good investment that has to be covered by others within the system 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 downward pressure on the rest of the system. So wondering if you could elaborate a little bit on how you see rates progressing over time?

Speaker 10

Yes. No. Go ahead, Chris.

Speaker 2

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're affordability is something we pay a lot of attention to. And there are things we do internal.

Speaker 2

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 is in fact putting down pressure on rates.

Speaker 4

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

Speaker 3

Excellent. Thanks for that. Really helpful.

Speaker 13

Appreciate it.

Speaker 2

Thank you.

Operator

Thank you. Our next question is from the line of Jeremy Tonet with JPMorgan. Please go ahead. Your line is open.

Speaker 2

Hey, Jeremy.

Speaker 7

Hi, good afternoon.

Speaker 2

Good afternoon.

Speaker 11

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 Several $1,000,000,000 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.

Speaker 4

Yes. 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 parent company is funding Georgia Power's equity contribution. And while we're financing That partially with new equity through our plans, certainly it's certainly not all being funded directly with new shares. So there's incremental debt there.

Speaker 4

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 think over $5,000,000,000 worth of maturities in the same time period. So the amount is kind of new money is much smaller.

Speaker 11

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 for those pending elections, do you expect the ballot and the elections to been 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 shape up there?

Speaker 2

I have no idea. I mean, that matter is 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.

Speaker 11

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.

Speaker 4

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 sighting, things will happen over time, but it's also likely 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.

Speaker 11

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

Speaker 2

Thank you.

Operator

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

Speaker 8

Hey, good afternoon, team. Hey, good afternoon. Hey, good afternoon. Hey, good afternoon, Chris. Good afternoon, Chris.

Speaker 8

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 The Georgia IRP, what I'm after is what like 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.

Speaker 4

Yes, it's a fair question to guess, but this is where I want to stop short of getting ahead of any regulatory processes here. 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.

Speaker 8

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

Speaker 4

Yes. I think what we've done with this Data is pretty representative of how we think about additional opportunities. So we added $5,000,000,000 of capital to this plan, let's call that $1,000,000,000 a year on average. We've added roughly $350,000,000 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 improved, but really just maintain the credit profile that's already in a really good place.

Speaker 8

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

Speaker 2

Thanks, Nargis.

Operator

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

Speaker 4

Andrew.

Speaker 14

Hey, good afternoon. A couple of quick follow-up questions really. One, just to clarify, the equity of $3.50 per year, that's through 26 in the slides. It kind of sounds like you're saying that's through 20 28. We think of that as just a run rate $350,000,000 per year going forward as in potentially more if there's more CapEx?

Speaker 4

Yes. So what that $350,000,000 represents is us turning on what we refer to as our internal plan. So it's issuing new shares through our DRIP, to our 401 ks and that's about the run rate and it just happens to match up pretty well with the needs associated with the $5,000,000,000 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 will tap into to help finance that.

Speaker 14

Okay, very good. Next on the CapEx update, just to clarify I'm sorry if I missed it. Does that include anything for Alabama Solar or would that be incremental? That would be incremental.

Speaker 4

Yes. No, that would be incremental. There's still no new rate base solar included. 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.

Speaker 4

Just to kind of point out since it maybe it wasn't clear because we only put a 3 year financing plan out there. Yes, 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 been the rounding.

Speaker 14

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?

Speaker 4

Another terrific question. So we had kind of alluded to the possibility of reevaluating the rate of dividend growth once we got VOGO4 into service and kind of had we're kind of in a steady state and into the 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 will remain on.

Speaker 14

Very clear. Thank you so much.

Speaker 8

You bet. Thank you.

Operator

Thank you. Our next question is from the line of Anthony Croudel with Mizuho. Please go ahead. Your line is open.

Speaker 8

Hey, good morning, Chris. Good morning, Dan. If I could just hit you up one quick one

Speaker 5

on the data centers and I guess the load growth. It seems that we you're 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. I just my question is if you go deeper into that on is it going to be bigger bill impact and bigger fights in rate design, but you don't think that's an issue?

Speaker 2

I mean, there's always that 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.

Speaker 4

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.

Speaker 2

And yes, 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.

Speaker 8

Great. Thanks for taking my question.

Speaker 2

You're welcome. Thank you.

Operator

Thank you. Our next question is from the line of Angie Storozynski with Seaport. Please go ahead. Your line is open now.

Speaker 2

Hey, Anne. How are you?

Speaker 15

Good morning. Okay, great. I guess I know that everybody is 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?

Speaker 15

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 Ferguson, Georgia.

Speaker 2

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 may 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.

Speaker 15

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

Speaker 2

Absolutely. Yes, that's correct.

Speaker 15

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 this is like an emerging market sort of case of load growth, especially for Georgia in those outer years and yet there's no impact from again from our vantage 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?

Speaker 4

Yes. Angie, It's a few things. Certainly, relative to where we were a year ago, and I think we've said this before, in a Higher for longer environment, certainly interest is a bigger headwind going forward. But the bigger dynamic And 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.

Speaker 4

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 20 fourseven. We've got a lot of resources. We just may have to incrementally add resources to serve the peaks.

Speaker 4

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.

Speaker 15

Okay, understood. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Our next question is from the line of Paul Fremont with Ladenburg. Please go ahead. Your line is open.

Speaker 2

How are you doing, Paul?

Speaker 13

Great and congratulations on a good quarter.

Speaker 2

Thank you very much.

Speaker 13

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 change potentially change your 5% to 7% growth target?

Speaker 10

No. Okay, great.

Speaker 13

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, NiCore to, any of the other gas subsidiary?

Speaker 2

And yes, 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.

Speaker 4

Yes. And any changes in Illinois are modest to be fair. I mean, 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 for NiCore Gas is compliance related. And so there's only so much to kind of not do in the 1st place.

Speaker 13

Great. And then my last question, I mean, generally speaking, when we think of EPS growth with respect to rate base growth, there tends to be dilution to the rate base to the level of rate base 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?

Speaker 4

Yes. Great question, Paul. So again, we were at 6% growth last year in rate base. We've added $5,000,000,000 of incremental capital to that. It's we've characterized it as approximately 6.

Speaker 4

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.

Speaker 13

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

Speaker 2

Thank you.

Operator

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

Speaker 7

Hello, everyone. Thank you.

Speaker 4

Thanks, Travis.

Speaker 7

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 of more years. Did I hear that correctly?

Speaker 4

Yes, 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 can 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.

Speaker 4

Right now, I think the reasonable expectation is that continued modest growth, which is just below 3%.

Speaker 7

Yes. Okay. Very good. And then, 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 6% or whatever percent Annual demand growth, should we also see a similar increase in operating costs or is there not a link Yes.

Speaker 4

There's certainly a relationship. I wouldn't call it a correlation, but to the extent we're building a new gas plant, certainly that comes along with incremental O and M to the extent we're 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 rents.

Speaker 7

Okay, got it. Thanks so much. I'll just go ahead.

Speaker 2

Thank you.

Operator

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

Speaker 8

Hi, everybody. How are you doing? Good. How are you? With Vogtle's COD targeted for April up some management attention and the personnel changes that were highlighted.

Speaker 8

Do you see any meaningful opportunities to reduce O and M spending Hello, the current guidance as time progresses, are these initiatives tabled given all the opportunity in Georgia by the IRP process?

Speaker 2

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 keep to drive rates and pricing down because 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 the cost of our O and M expenses. Also making sure we take full advantage of fuel pricing and 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 and M and find ways to be more efficient.

Speaker 4

Yes. And just as a nuance, all the costs associated with completing VOGO 34 is capital cost. And so those aren't O and M costs that are an opportunity to reduce.

Speaker 2

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

Speaker 8

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, how are there any limitations with supply chain that could constrain growth opportunities Via the IRP process.

Speaker 4

Yes. 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.

Speaker 8

Okay. Well, thanks for taking my questions.

Speaker 4

Thanks, Matt.

Operator

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

Speaker 2

Hey, Paul.

Speaker 16

Good afternoon. Congratulations on these opportunities that you guys have. Just as we expected 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, etcetera. Is it correct to assume that these guys, these data centers, etcetera, have a price in mind at this. I mean, they wouldn't be doing this.

Speaker 16

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?

Speaker 2

I think there is a yes. I mean, they may not know exactly what 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.

Speaker 2

That's part of the conversation that we have with it.

Speaker 16

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?

Speaker 2

No. I mean, like I said, I mean, we will I mean, they'll Yeah.

Speaker 4

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

Speaker 16

Okay. Then 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?

Speaker 2

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

Speaker 16

Okay. And then just finally, when we're looking at 26%, 27% and 28% and that 9% number, for instance, for Georgia Power, Does that go up a lot? In other words, is it kind of ratable? I mean, is 28 a lot higher than 26 if you what I'm saying? In other words, it's a 3 year period.

Speaker 16

The number jumps up a lot in that period. Do you follow what I'm saying? In other words, Is it roughly the ratable over that period of time or is this sort of a hockey stick in terms of What you see in terms of this demand?

Speaker 4

Yes. It's fairly ratable, Paul. It's obviously not perfectly linear by any means, but That the significant load really begins to come in and say late 2025 and into 2020 6, which is why a lot of the resource proposals you see at Georgia Power to really serve the 2026, 2027 winter peak to make sure they're in place for that and then it continues to grow from there.

Speaker 16

Well, thanks so much and congratulations.

Speaker 4

Thank you. Thanks, Paul.

Operator

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

Speaker 2

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.

Operator

Thank you, sir. Ladies and gentlemen, this concludes The Southern Company 4th quarter 2023 earnings call. You may now disconnect. Have a good day.

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