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Southern Q4 2022 Earnings Call Transcript


Listen to Conference Call

Participants

Corporate Executives

  • Scott Gammill
    Vice President, Investor Relations and Treasurer
  • Tom Fanning
    Chairman and Chief Executive Officer
  • Dan Tucker
    Executive Vice President and Chief Financial Officer
  • Chris Womack
    Chairman, President and Chief Executive Officer, Georgia Power

Analysts

Presentation

Operator

Good afternoon. My name is Scott, and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company Fourth Quarter 2022 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Mr. Scott Gammill, Vice President, Investor Relations and Treasurer. Please go ahead, sir.

Scott Gammill
Vice President, Investor Relations and Treasurer at Southern

Thank you, Scott. Good afternoon, and welcome to Southern Company's Year End 2022 Earnings Call. Joining me today are Tom Fanning, Chairman, President, and Chief Executive Officer of Southern Company; and Dan Tucker, Chief Financial Officer. In addition, Georgia Power's CEO, Chris Womack, who will be succeeding Tom as President and CEO in the coming months is also joining us.

Let me remind you, we'll be making forward-looking statements today in addition to providing historical information. Various important factors could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K, Form 10-Qs, and subsequent filings. In addition, we will present non-GAAP financial information in this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com.

At this time, I'll turn the call over to Tom Fanning.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Thank you, Scott. Good afternoon, and thank you for joining us today. Southern Company had another exceptional year in 2022. As you can see from the materials that we released this morning, we reported strong adjusted earnings per share consistent with the very top of our guidance range. These results were due in no small part to the culmination of the hard work of thousands of people throughout our company to put in day in and day out to provide customers with clean, safe, reliable, and affordable energy.

Our operations team, generation fleet, and power delivery system worked exceedingly well in 2022, which included meeting an all-time peak load of over 41,000 megawatts in June, and navigating well an extreme winter-cold event over the Christmas weekend that pushed electric demand to a system peak load of nearly 38,000 megawatts, a December record.

Our success with these events is a testament to the value of our vertically integrated state-regulated business model delivers to our customers and the communities we are privileged to serve. A great example of the benefits which come from our state's long-term integrated planning processes is the 26% winter reserve margin factored into the capacity planning process. This winter reserve margin, which is significantly higher than typical summer reserve margin, inherently recognizes that peak demand in the winter occurs during the dark early morning hours when solar resources are diminished and cold temperatures can have unintended adverse effects on generation and fuel supply equipment. So it's thoughtful planning assumptions along with robust winterization programs and a continuous focus on resilience investments are top of mind across all of our state-regulated utilities.

Let's turn now to an update on Vogtle Units 3 and 4. Since our last call, the site team at Unit 3 has turned to testing and startup process in support of the unit's next major milestone, initial criticality. During this process, as disclosed in January, we identified vibrations associated with certain piping within the passive cooling system, which required additional time to remediate. The site team cooled down the unit and successfully remediated the vibrations, allowing them to resume the testing which precedes initial criticality.

During this work, we identified a few additional issues to address. Consistent with our focus on optimal long-term performance and getting it right, we've added some additional time to the Unit 3 schedule to address these items and to reduce the risks associated with other potential issues emerging. We now project placing Unit 3 in service in May or June of 2023.

Turning now to Unit 4, substantial progress continued throughout the last quarter. We successfully completed cold hydro testing in early December. Electrical production and terminations through year end were sustained at levels supportive of our year end 2023 in-service objective. All required systems necessary to start hot functional testing on Unit 4 have been completed and turned over to the initial test program.

Component and system testing activities are steadily increasing and are now critical path in support of the next major milestones for Unit 4, hot functional testing and fuel load. We have seen a market improvement in testing results for Unit 4 compared to the Unit 3 process, which reflects the increased focus on first-time construction quality and timely documentation. Even with the improved results, somewhat slower-than-planned testing productivity has consumed margin in our schedule. The sites' working schedule continues to reflect a couple of months of remaining margin for a 2023 in-service date.

After careful consideration and given our experience on Unit 3 and the degree of critical work ahead of us, we are further risk-adjusting our Unit 4 schedule to reflect a range of the projected in-service date between late fourth quarter of 2023, and the end of the first quarter of 2024.

Turning now to cost. Georgia Power's share of the total project capital cost forecast reflects a projected increase of $201 million to fund the extension of Unit 3 and Unit 4 projected in-service dates to the end of the second quarter 2023 and to the end of the first quarter of 2024 respectively plus modest increases in the projected cost of resources to complete the remaining work and testing on Unit 4. As a result, Georgia Power recorded an after-tax charge of $150 million during the quarter. We've included project schedules for the next major milestones for each unit, including initial criticality for Unit 3 and the start of hot functional testing for Unit 4 in the materials provided for this call.

Our priority remains bringing Vogtle Units 3 and 4 online to provide Georgia with a reliable carbon-free resource for the next 60 years to 80 years. We will continue to take the time needed to get it right and we'll not sacrifice safety or quality to meet schedule.

Dan, I'll turn the call over to you.

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

Thanks, Tom, and good afternoon, everyone. As Tom mentioned, we had strong financial results for the year with adjusted earnings of $3.60 per share, $0.19 higher than 2021.

The primary drivers for the year-over-year increase are higher revenues associated with retail pricing, warmer weather, primarily in the second quarter of 2022, customer growth, increased usage, and investment of our regulated utilities. These revenue effects were partially offset by higher non-fuel O&M expenses and higher interest expenses. The increase in non-fuel O&M reflects long-term commitments to our regulated utilities to reliability and resiliency along with efforts to advance maintenance activities in light of emerging cost pressures. Additional shares from the mandatory conversion of our equity units in August '22 are also reflected in 2022 EPS results. A detailed reconciliation of our reported and adjusted results compared to 2021 is included in today's release and earnings package.

Weather-adjusted retail -- excuse me, electric sales were up 1.2% for 2022 compared to 2021, almost double the growth rate forecast for 2022 and back above pre-pandemic levels. We continue to see robust residential growth with the addition of nearly 50,000 residential electric customers and over 30,000 residential gas customers throughout the year. Residential customer usage also continued to outpace our expectations, reflecting sustained hybrid work practices across our service territories.

Additionally, commercial sales for 2022 beat our forecast by nearly 2%, reflecting a reversion to pre-pandemic trends as the economy shifts from consuming goods to services. Industrial sales for 2022 were lower than forecast by 1.5%, driven by a chemical facility closure and weakening industrial sales momentum during the second half of the year. With interest rates rising, we have seen slowing in construction and housing-related sectors such as lumber, stone clay and glass, and textiles.

In the fourth quarter of 2022, eight of our top 10 industrial segments experienced slower sales growth as compared to the prior quarter. Included in our 2023 guidance is an assumption of retail electric sales growth of 0% to 1%, and as in prior quarters, we continue to monitor the potential implications of supply-chain constraints, labor force participation, and inflationary pressures on our outlook.

The economic development pipeline in our service territories remains robust. 2022 economic development announcements in our Southeast service territories saw an increase in expected job creation and capital investment of 135% and 257% respectively in 2022 as compared to 2021. The pipeline of potential projects grew significantly compared to recent years with new corporate announcements and expansions representing a broad cross-section of industries, including automotive, technology, e-fulfillment and distribution, healthcare, and bioscience.

In addition to the traditional factors that have historically drawn businesses to our service territory, like transportation networks, a lower cost of living, and business-friendly state and local policies, another emerging trend that continues to drive momentum in both economic development wins and the size of the potential pipeline is the diversified workforce, especially technology workers and the diverse university systems in our territories which prominently feature several HBCUs. We're proud to have been on the forefront of helping develop this workforce through our significant investment along with Apple in the Propel Center in Atlanta. More and more as other companies strive to have their workforce reflect the diverse global customers they serve, our Southeast service territories have become a top choice for relocation or expansion.

We are proud of the significant role that our subsidiaries play in attracting new businesses to our service territories. And in 2022, Site Selection magazine named Alabama Power and Georgia Power top U.S. utilities for economic development for the fourth consecutive year and recognize the State of Georgia as the second-best business climate in the country. Strong economic development activity continues to differentiate our Southeast service territories from other areas of the country.

Turning now to our expectations for 2023. Our adjusted earnings guidance range for the year is $3.55 to $3.65 per share. Expected drivers for 2023 versus 2022 are continued growth in our state-regulated subsidiaries, including the contribution related to Vogtle Unit 3 going into service offset by higher parent company interest expense, including financing costs for plant Vogtle Units 3 and 4 costs in excess of $7.3 billion deemed reasonable by the Georgia PSC and share dilution reflecting the full year impact of the mandatory conversion of our equity units in August 2022. We estimate adjusted earnings of $0.70 per share for the first quarter.

Additionally, we are narrowing our 2024 adjusted guidance range of $4 to $4.30, which was established in early 2021. In order to acknowledge the uncertainty inherent and providing guidance three years in advance, the original 2024 range was wider than our typical annual EPS guidance ranges. Since this range was introduced in February 2021, our state-regulated outcomes have been largely consistent with our assumptions. Several upside opportunities inherent in the top-end of our original range like renewable and storage investment opportunities at both our state-regulated electric companies and Southern Power have been deferred to later years, largely due to adverse market conditions, including more challenging contracting requirements and global supply-chain constraints.

Financing cost, particularly parent company interest rates, are a significant headwind relative to our forecast in early 2021. Rates on variable and short-term debt are significantly higher than expected and as securities in our low-cost debt portfolio mature, new issuances, no matter the tenure, are significantly more expensive. Compounding these negative parent company interest-rate effects are the growth in our state-regulated capital plans relative to early 2021 and the increased costs for Georgia Power share of Vogtle 3 and 4, which has grown by nearly $1.9 billion since early 2021. Collectively, these factors would narrow our $4 to $4.30 range adjusted for 2024 to $4 and $4.10. Adding the potential for Vogtle 4 to be completed at the end of the first quarter of 2024, which would have a negative $0.05 per share impact solely in 2024, we are providing an adjusted 2024 earnings guidance range of $3.95 to $4.10 per share. We plan to further narrow this range during our fourth quarter 2023 earnings call early next year.

We continue to see our long-term adjusted EPS growth rate in the 5% to 7% range, consistent with our updated 2024 adjusted EPS guidance range. This projected growth is supported by a $43 billion capital plan with 97% of total projected capital deployment over the next five years at our state-regulated utilities. Additionally, our history of constructive regulation, strong credit ratings, and disciplined O&M spending serve to strengthen our outlook.

Our robust capital investment program continues to be driven by significant investment in our state-regulated utility businesses. Our total base capital investment plan of approximately $43 billion, which excludes the capital required to complete Vogtle Units 3 and 4, reflects a $2 billion increase in state-regulated utility investments relative to our previous five-year forecast. These increases in our forecast are the result of greater visibility into infrastructure required to serve major customer additions and expansions, further improve our grid, and protect our technology infrastructure as well as investments related to the transformation of our generation fleet.

We have continued to maintain our disciplined approach to capital forecasting within our state-regulated utility businesses. Consistent with past practice, we don't include placeholders, and we don't include capital that isn't expected to earn our allowed regulated returns. The result of this approach is that our capital expenditure forecast tend to grow, especially in the later years as our visibility into customer growth increases as regulatory processes unfold, as compliance obligations evolve, and as our long-term system planning is refined. We fully expect this trend to continue.

Additionally, we continue to believe Southern Power has a significant opportunity to continue growing through investments that facilitate fleet transitions in the growth of clean-energy infrastructure across the United States. Southern Power's business model has been distinctive since its beginnings in the early 2000s, focusing on long-term contracts with creditworthy counterparties and a risk-adjusted return profile that aligns well with our overall value proposition. We've allocated up to $3.5 billion over the five-year plan with approximately $500 million in 2023 and $750 million annually for the remainder of the forecast period. These allocations of capital are not included in our base capital forecast.

Our financial plan is anchored to our base capital forecast of $43 billion. As I have already suggested, we believe upside potential exists in our state-regulated subsidiary forecast and our Southern Power allocation which if realized would result in total spend of over $46 billion. We also continue to believe many of the same drivers for additional potential investment over the next five years could translate to investment opportunities beyond 2027 as we continue our journey to achieve net-zero greenhouse gas emissions.

We have included a three-year financing plan in the Appendix to today's slide deck. This plan, which is consistent with our updated capital investment plan and the potential capital investment opportunities that we've highlighted, continues to assume no equity need over our five-year planning horizon. As always, we'll maintain our discipline and the flexibility to use all the financing tools at our disposal to drive value for shareholders.

Credit quality and strong investment rate -- strong investment grade credit ratings remain a top priority, and we continue to believe that to be a high-quality equity investment, our company must maintain a strong credit profile. As we complete plant Vogtle Units 3 and 4, we believe the expected reduction in construction risk and the projected improvement in FFO to debt metrics further position us to support our credit quality objectives.

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

Tom Fanning
Chairman and Chief Executive Officer at Southern

Thank you, Dan. Southern Company strives to deliver superior risk-adjusted total shareholder returns, and I believe the plan we've laid out will support that objective. Our customer and community-focused business model, our growing investment in our state-regulated utility franchises, the priority we place on credit quality, and our action toward achieving net-zero greenhouse gas emissions, all contribute to making Southern Company a premier sustainable investment. A remarkable dividend track record remains a vital component to our value proposition. For three-quarters of a century, we have paid a quarterly dividend that is equal to or greater than the previous quarter, including sustained dividend increases for more than 20 years.

In closing, I am sure that most of you are well aware of the recent announcement of Chris Womack to succeed me as President and Chief Executive Officer in the coming months. I will remain as Executive Chairman of the Board of Directors. In conjunction with this announcement, where a number of other senior leadership changes was -- highlighted the depth of talent we've worked hard to develop at Southern Company. I expect each of these leaders will flourish in their new roles, further strengthen the company's deep bench, and bring a fresh perspective to each of our businesses.

With Chris Womack and his team leading us, the future of Southern Company is in great hands as we continue to strive to make the communities that we have the privilege to serve better off because we're there, and as we continue our relentless pursuit to provide customers with clean, safe, reliable, and affordable energy.

With that, I'll turn the call over to Chris Womack for a few brief remarks before we get to Q&A.

Chris Womack
Chairman, President and Chief Executive Officer, Georgia Power at Southern

Thank you, Tom, and good afternoon, everyone. I cannot be more excited to have the privilege to lead Southern Company in the months and years ahead. It is an important time in our industry as the energy landscape continues to evolve and customers' needs continue to change.

Southern Company is at the forefront of that evolution and we are building the future of energy. It is an honor to lead teams that are dedicated to innovating and delivering world-class customer service and reliability customers, while also moving boldly forward in our journey to continuously represent our values and improve the communities we serve.

Tom and his predecessors, along with the thousands of team members across the enterprise Tom mentioned earlier, have built a solid foundation for Southern Company, and we've got a lot of important work ahead of us to continue to build upon their legacy.

Thank you, all, again for joining us this afternoon. I look forward to getting the opportunity to get out and interact more closely with each of you in the investment community during the weeks and months ahead.

Operator, we're now ready to take questions.


Questions and Answers

Operator

Thank you. [Operator Instructions] We do have a question from Shar Pourreza with Guggenheim Partners. Please go ahead. Your line is open.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Hello, Shar. How are you?

Jamieson Ward
Analyst at Guggenheim Partners

Hi, Tom. Shar is actually on the road traveling West. It's James Ward here on for him.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Well, glad to have you, James.

Jamieson Ward
Analyst at Guggenheim Partners

Thank you. Thank you very much. Appreciate it. Glad to be here, and thank you for taking our questions. Just wanted to first congratulate Chris on your new role and, Tom, on your planned transition and the evolution of your role in the company. So congrats to you both.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Thank you.

Chris Womack
Chairman, President and Chief Executive Officer, Georgia Power at Southern

Thank you.

Jamieson Ward
Analyst at Guggenheim Partners

So I have a few questions here. Quick one-off the bat. Just had a few inbound questions from people to clarify the 5% to 7% base remains the 2024 midpoint, but now it's the midpoint of $3.95 to $4.10, is that correct? Or is there another way to think about the base for that 5% to 7% going forward post Vogtle?

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

Yeah. Hey, James. This is Dan. So look, we were very intentional in choosing the words consistent with our adjusted guidance range. Those words were really acknowledging of two things. Thing one is just like we did with the $4 to $4.30, we'll further narrow this range as we get line of sight on Unit 4 and have our fourth quarter earnings call next year. Thing two that it acknowledges is that the $0.05 impact for Vogtle 4 potentially going into the first quarter of 2024 is a one-year effect and so the growth rate will be off of that narrowed range when we get to 2024.

Tom Fanning
Chairman and Chief Executive Officer at Southern

The other thing is the $0.05 reflects a full charge assuming you go in at the end of the quarter. I'm really -- I would be a little disappointed if that's where we end up. Right now as we stand, adding that extra quarter, we got five months of margin on Unit 4. Hopefully, we can do better than that.

Jamieson Ward
Analyst at Guggenheim Partners

That's very clear, and that's great. So -- okay. So it would be a higher base than what some people might have been reading it out. That's good to hear. Looking at your new capital plan and then assuming that some or all of the capex beyond the base plans able to be added, could you give us a bit more color on how much of that $3 billion could potentially end up at the regulated utilities versus Southern Power?

And then as a follow-up, in the slides, you showed 11 different categories there, the examples of where that incremental investment could be: renewables, transmission, etc. In your view, which of these categories are most likely to end up in the plan? What's kind of low-hanging fruit, if there is such a thing or just what is most probable and in sort of what years if we were to be building kind of an upside scenario versus a base scenario that we're trying to look at, what would make the most sense to kind of prioritize there?

Tom Fanning
Chairman and Chief Executive Officer at Southern

Yeah. If it was me, do you include the graphs you've done in the past about how the capex shows? We have -- yeah, there you go. What is that? Page 21 is what I'm looking at. I don't know what you guys see. We have a history of always undershooting, especially our outward year forecast. And on the average, I would say that taken over the five years, we undershoot another $3 billion. Just round numbers. So if you look over the entire five-year period in an upside case, may include $3 billion of additional franchise-related rate-base-looking capex investments.

I mean, whether Southern Power hits its $3 billion or not remains to be seen about market conditions, supply chain constraints, and a variety of other things. We've been very clear in past calls to call out what I think have been challenging market conditions. Shorter terms, we like bilateral contracts, no fuel risk, creditworthy counterparties, etc. The contract conditions have gotten tougher and we're very disciplined. We generally expect about 150 basis points premium for us to go down the bilateral contract route via Southern Power as compared to our franchise utilities.

Now, whether we are able to duplicate that or not, we'll see. If they don't show up, we won't invest. If you want to include more upside, I would include some portion of that $3-plus billion for Southern Power over the five-year period. I would also kind of tilt those investments towards the backend. One last comment, I will make, we said in the script but I think it's important. When you look at additional capex available outside the five-year period, I think you really do start picking up some of the generation transition kind of capital that may be available. Recall, we will have a high bias towards more gas, more renewables, particularly, solar in our region.

Dan, you want to add to that.

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

Yeah. Look -- I think you've covered it really well. The other thing I'd just reinforce, James, is the 5% to 7% growth rate is based on our $43 billion capital plan opportunity. To deploy more than that simply strengthens our position in that regard or potentially lengthens our position in that regard. And just going back to what Tom said about the longer-term, just recall, a lot of our coal retirement plans happen at the very end or the year after our five-year plan and that really is where a lot of incremental opportunities also can unlock.

Tom Fanning
Chairman and Chief Executive Officer at Southern

I mean, for example, a big slug of retirements are in '29. So as Dan said, that's outside the five-year.

Jamieson Ward
Analyst at Guggenheim Partners

Got you. That's extremely helpful, and especially the color on upside there, very much appreciate it. Yeah. That helps a lot. The final question for us is in the slides, you mentioned that you expect robust customer growth across your service territories. We'll then also, of course, only expecting flat to slightly increasing retail electric sales. Building on the details that you've shared in the prepared remarks, could you give us just a bit more granularity given that these are broad rather than just regionally focused on one particular area? On these broad trends, what's driving the divergence there, or are you just taking a more conservative approach going forward to help us understand it a bit more how look at it?

Tom Fanning
Chairman and Chief Executive Officer at Southern

Yeah. It is kind of a conservative approach but here's the thing. We have in front of us kind of data that supports a couple different scenarios. On CNBC, this morning, I talked about the potential for a soft or no landing. In other words, when you look at growth year-over-year, we have kind of a negative mixed bag of things going on in industrial. They're not all negative. There are some positives, but when you look at the momentum statistics, that is the first derivative of growth, they are all negative. In other words, even if you grew year-over-year, the growth rate was smaller. So that would seem to indicate that at least within the industrial sector that things are slowing a bit. Now, they have been way better than what they thought we would be, but still slowing, okay?

On the other hand, what we're seeing out of our economic development statistics, increase in job announcements of 130%, increase in capital investment, a little over 250%. That says that economic development projects generally show up in the two to three to perhaps more time frame. So what it says is we may see a wee bit of a downturn, a slowing in the economy in 2023, but we don't see this thing dipping into recession levels, and we see recovery. Certainly, I think the Southeast has demonstrated that capability in the past. Couple more economic data that's important. We tend to grow about 1% a year projected for the next, I don't know, five years. Everybody is able to get jobs for the most part right now. We have historically-low unemployment levels. So you add the kind of steady drumbeat of population growth to the Southeast, as Dan said before, a business-friendly climate. I think we can see maybe some slowing in '23 but recovering in '24.

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

Yeah. And then same time, this connects that back to your previous question. Look, this growth is certainly exceeding our expectations in terms of the economic development activity. And that could very well translate to the need to invest more to serve that load that was not anticipated. So we think over the next three years to five years, that that will all begin to be very transparent to the market.

Tom Fanning
Chairman and Chief Executive Officer at Southern

One last point, the -- it looks like the work environment on employees, we call it hybrid now, but it looks like it's settling down. So we're seeing residential higher than what we thought, commercial certainly higher than what we thought. We'll see how that works out in the future. There's probably still some variance there.

Jamieson Ward
Analyst at Guggenheim Partners

Very helpful all around. Especially in framing potential upside scenarios there, it looks like you guys might be very well positioned to head into depending on how the macro environment works out. Either way, looking forward to having Vogtle done this year, as I'm sure you and everyone else are, and being able to move on to everything you've just been talking about. So looks like great things ahead. Thanks again for taking the questions. Appreciate it.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Thank you, James.

Operator

We have a question from Steve Fleishman with Wolfe Research. Please go ahead. Your line is open.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Hey, Steve. Thanks for joining us.

Steve Fleishman
Analyst at Wolfe Research

Yeah. You bet. Good afternoon. So just on -- and by the way, congrats to both, Tom and Chris and Kim and team. So the -- on the Vogtle 3, could you please elaborate on the few additional issues that are adding more time, and then also your comment of reducing risk of other issues? Can we get color on all that?

Tom Fanning
Chairman and Chief Executive Officer at Southern

Yeah. Sure. There were kind of three things. There were many other test than the three things we identified. So you should know that we successfully evaluated a lot of things going up to criticality. So the three though that we point to that caused delays, say, at least the first two on their own weren't big, but they required us, as we started to heat the plant up and pressurize it, we saw the vibrations. There was some conversation about whether we should start the critical test and fix it later. And we said, no, let's do it right. So we brought the plant down, we inserted a couple of metal plates, to be honest with you, it's -- some struts that connect to the pipe and fix the vibration. I mean, it was pretty straightforward. It just took time to heat up, pressurize, take heat down, depressurize.

The second thing we saw was a valve that was connected to some pipes that effectively had two drips per minute. We wanted to eliminate all drips. And we identified that there was a repositioning of a flange associated with this valve that we ultimately are -- I think we're just about fixed with it today. But I got to report from Pete Sena, our President of Nuclear, and I think that's done today. That's completed. The last issue is not completed, but it has to deal with flow through the reactor coolant pumps, and we're just now making sure that we know what the issue is. It could be a physical issue, it could be a calibration issue. In fact, the flow may be good, but we need to recalibrate the measurements around it. So we're all about kind of looking at that today.

Steve Fleishman
Analyst at Wolfe Research

Okay. And then in terms of the comment about doing these to reduce the risk of other issues, is that -- you're saying there that kind of by doing these things, you think the chance of other things coming up at this point is going to be lower or something after you start it up or...?

Tom Fanning
Chairman and Chief Executive Officer at Southern

Oh, I would so.

Steve Fleishman
Analyst at Wolfe Research

I guess the opposite -- yeah. Okay.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Yeah, Steve. I would think so. I mean that's -- when we go in to fix the vibration on the pipe, we saw this others, then we said, yeah, let's not push it, let's fix it. All of that takes time. It's this phrase we use, but we really do act on it to get it right. We'd rather have this thing, get into criticality. Once you go nuclear and go critical, things become much tougher. So anything we know about, let's deal with it now. And you should know that anything we find now, we go over to Unit 4, and check that. For example, we think the issue on pipe vibrations is spoken for now on Unit 4, we won't see that. So anyway, that really is the answer. We're trying to get as much as we can. Once you get -- go critical, it's a much more challenging environment than it is before you go critical, just trying to get everything we can see right now.

Steve Fleishman
Analyst at Wolfe Research

Okay. And I guess, is the fact that you found these things kind of a concern that you're going to find more, or is it really more of the opposite that you found these things, this is just part of a big plant starting up and hopefully, there is less of a risk from here?

Tom Fanning
Chairman and Chief Executive Officer at Southern

Yeah, but that is why we test, right? I mean you should view the power ascension once you go critical as a series of tests that involve a whole variety of different conditions of the plant, taking it up, bringing it down, throwing emergency stops in there, all kinds of things. The purpose of the initial voyage, if you will, the test voyage is to find problems, and now -- we allow for that within the schedule. And now, in fact, we have more time to allow. The schedule calls for I guess on the original schedule, something like two months of testing, the prescribed startup and it's two months. And there's roughly a month of slack time to fix things, okay? We now have, I think, another month that we've added into our projection into the second quarter.

But for sure, Steve, we'll find someone to...

Steve Fleishman
Analyst at Wolfe Research

Okay.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Trust.

Steve Fleishman
Analyst at Wolfe Research

Yeah, yeah. Okay, okay. I think that's it for me. Appreciate it.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Thank you.

Operator

Our next question is from David Arcaro with Morgan Stanley. Please go ahead. Your line is open.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Hey, David. How are you?

David Arcaro
Analyst at Morgan Stanley

Hey, good morning. Great. Thanks. Thanks so much for taking my questions, and extend my congratulations as well. I was just wondering, a follow-up on that question is, NRC approval, has that been needed for any of the remediation work on these couple of issues that you found at Unit 3?

Tom Fanning
Chairman and Chief Executive Officer at Southern

We've been in constant contact with the NRC, and we did have -- I think with connection of the vibration two license amendments, but we got those in a matter of days. This was not a protracted process. And like I say, I think that we continue to work hand in glove with those guys. They were also aware of the valve leak and they're happy, I think with the process that we're following there. You should understand that the working relationship with all of the external parties, whether it's the NRC or whether it's the State Commission or DOE, anybody, we all sit in the same meetings, we all see the same stuff, we have full and complete transparency in everything we do on that site.

David Arcaro
Analyst at Morgan Stanley

That makes sense. Understood. And are these issues that at this point now you could potentially avoid for Unit 4, bring learnings from the startup process on Unit 3, and potentially make Unit 4 smoother such that it's not a kind of a one-for-one delay here equals a delay later?

Tom Fanning
Chairman and Chief Executive Officer at Southern

Amen, brother. That's exactly what we're trying to do. And in fact, the process I think it's been noted by many have shown that Unit 4 is going a lot smoother than Unit 3 just because of learnings of Unit 3. I think the process we went through on Unit 3 at times was somewhat painful, but I think it was certainly instructive. If you may remember, as we started, went into HFT for Unit 3, we were turning over systems like the day before we went to HFT. For example, all systems necessary to undertake HFT have been completed. The long pole in the tent on HFT at Unit 4 is our ITP, our integrated test plan.

David Arcaro
Analyst at Morgan Stanley

Yeah. Got you, got you. And then, a separate topic but the decline in natural gas prices is a nice tailwind for customer bills. I was wondering when would customers -- could you just remind us when they might see lower prices flow through into rates, and how does that interact this year with your plans for the deferred fuel collections?

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

Hey, David. This is Dan. So certainly, lower prices are going to benefit customers in Georgia Power in particular who has the largest unrecovered balance, ended the year at about $2.1 billion. They'll file at the end of February for those rates. So certainly, don't want to front-run that process but if, to the extent, forecast continue to look the way they do today or further come down, the impact on customer bills will be greatly mitigated. The -- our other electric jurisdictions have already initially addressed the under-recovery that was happening, and so these lower prices are simply going to accelerate that recovery.

David Arcaro
Analyst at Morgan Stanley

Okay. Great. That's helpful. Thanks so much.

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

You're welcome.

Operator

And we have a question from Durgesh Chopra with Evercore ISI. Please go ahead.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Thanks for joining us.

Durgesh Chopra
Analyst at Evercore ISI

Hey. Thanks. Thanks, Tom. Appreciate it. Hey, I think, Dan, this is in your view-house, maybe just, and I apologize if I missed this, but can you give us your sort of your CFO to debt or FFO to debt as of year-end 2022, and where that is tracking versus the -- your targeted credit metrics. And then when, in your planning horizon, do you expect to get to your targeted credit metrics?

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

Yeah, Durgesh. Thanks for the question, and happy to share that. And as you know, all the agencies calculate those metrics a slightly different way, but I think there's certainly a lot of focus on Moody's and S&P, so I'll hit on those in particular. Moody's, we were about 12% for 2022 and S&P about 15%, and as you'd expect, those were pretty significantly impacted by the under-recovery fuel dynamics, particularly the Moody's metric in the way that they calculate that. A portion of it is the debt, and a portion of it for us is also the impact that under recovering that fuel had on our tax appetite and our ability to monetize tax benefits. When you combine those factors overall, really about a 400 basis point impact to the Moody's metric in 2022.

As we look ahead, and we've talked about this a lot in the past, Vogtle, certainly on its own, has a significant impact on improving the overall financial profile of the company as we begin to recover our investment on that in the future. As we get out to 2024, once it's in-service, our metrics are closer to 17%, 18%, which are well above our targets and provide us that kind of buffer against adversity that we prefer to have in our profile.

Durgesh Chopra
Analyst at Evercore ISI

Got it. That's super helpful, Dan. So just to be clear, like you'd be outside of the fuel balance. You'd be close to like 16% on Moody's basis as at the end of 2022 if we exclude the fuel balance that's on the balance sheet?

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

That's right. And as I give you that 17%, 18% projection in the future, that includes an assumption that we might still have an unrecovered balance that we continue to collect, but that is certainly been worked down and Vogtle has kind of overlaid that to improve the overall profile.

Durgesh Chopra
Analyst at Evercore ISI

Got it, got it. Thanks again. And just one, hopefully, quick one. In 2023 EPS guidance range, can you just remind us like what is your assumption for earnings from the Unit 3?

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

So it's about $0.04 or so that it contributes in 2023 relative to 2022, so that's essentially the assumption of a little more than half of the year in service. And then there's -- that's offset slightly by the fact that there is some of the rate base that won't actually earn its full return until Unit 4 is also in service.

Durgesh Chopra
Analyst at Evercore ISI

Got it. Thanks so much, and congratulations, Chris and Tom. Much appreciate the time today.

Chris Womack
Chairman, President and Chief Executive Officer, Georgia Power at Southern

Thank you.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Thanks, Durgesh. Always glad to have you with us.

Operator

Our next question is from Angie Storozynski with Seaport Global. Please go ahead. Your line is open.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Hey, Angie. How are you?

Angie Storozynski
Analyst at Seaport Global Securities

Good, good. But I will stir it up a little bit. So can we talk about management succession? So we're really glad to see the updates and congratulations to you and Chris, but I'm just wondering how the -- Chris's appointments reconciles with the age policy that Southern used to have at least, so that's one?

And then two is we had some negative headlines around Alabama Power. There has been a change in CEO, and I'm just basically asking if there is any link in those management changes at that subsidiary and those media headlines.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Yeah. Sure. The 65 thing is kind of a policy, it's not a rule, I don't guess. The Board and I had lots of discussions about staying on beyond 65, one of my personal interest has been to help see Vogtle through. And I'm still young physically and young at heart, I guess. And when we kind of crossed that threshold, we looked at people like Womack who is, I guess you're about a year younger than me, and if you've been around Chris at all, you would know that he still acts like a 25-year-old.

Chris Womack
Chairman, President and Chief Executive Officer, Georgia Power at Southern

Thank you very much.

Tom Fanning
Chairman and Chief Executive Officer at Southern

So it was very easy to see him continue in the role. He has fire in his belly and he's done a great job wherever he's been, most notably at Georgia Power successfully working with our constituents on the three-year triennial rate case that we do. So it was easy for us to kind of say, look, 65 is just a number, so long as we're able to contribute in a robust way, that's great, and no -- and that's how we did that.

There really wasn't any connection with Mark Crosswhite, to be honest with you. He had -- I mean I don't want to go into all that but he had some issues he want to deal with. It was reasonably clear that he wasn't a contender as a successor here, and I think he decided to retire. That was kind of his choice at the end of the day.

Angie Storozynski
Analyst at Seaport Global Securities

Okay. So just one follow-up on, Chris. So we should expect that Chris is going to stay in the current spot for the next couple of years even if he crossing that 65-year-old threshold.

Chris Womack
Chairman, President and Chief Executive Officer, Georgia Power at Southern

Yeah.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Let me -- Wait, I'll go ahead. Chris was that directly. He is committed to 70.

Angie Storozynski
Analyst at Seaport Global Securities

Okay. Good for you. Okay. Moving on to Southern Power, so I hear your comments and I see obviously the reduction in growth capex at that subsidiary, but is it, I mean, are you trying to conserve financing? Is that the constraint, I mean, I obviously hear issues with profitability of additional contract base renewables and some constraints about equipment availability, but I'm just wondering if the -- if you were just trying to plan your spending for Southern Power within the capital structure that you currently have.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Oh no, Angie. It has nothing to do with that. It really is two things, so Dan is a conservative soul. And he likes to build his plan without considering upside. So as we've done for years, the way before Dan got here, we don't put in placeholders. We think about them and think about what effect they could have. Further, we don't add anything from Southern Power. You should think about contributions from Southern Power as upside to the base case. It really isn't a constraint of capital structure or balance sheet.

Angie Storozynski
Analyst at Seaport Global Securities

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

Tom Fanning
Chairman and Chief Executive Officer at Southern

Yes, ma'am. Thank you.

Operator

We have a question from Nick Campanella with Credit Suisse. Please go ahead. Your line is open.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Hey, Nick.

Nick Campanella
Analyst at Credit Suisse Group

Hey, everyone. Hey, congrats to all management changes. Thanks for taking the question as well.

Tom Fanning
Chairman and Chief Executive Officer at Southern

You bet.

Nick Campanella
Analyst at Credit Suisse Group

I guess just hot functional for Unit 4, you have this nice slide here, Slide 8, looks like end of March to, call it, late June on HFT. Just going back to kind of the conservatism comments like where do you kind of see yourself tracking towards now with the system turnovers in the line of sight? Thanks.

Tom Fanning
Chairman and Chief Executive Officer at Southern

The site working plan has HFT in March. We know that things can happen between now and then, but that's what it shows.

Nick Campanella
Analyst at Credit Suisse Group

Okay. And then can you just update us on the timeline for the prudency review? Just with the latest kind of updates to the COD data?

Tom Fanning
Chairman and Chief Executive Officer at Southern

It's fuel load on Unit 4. Chris, you want to say anything more?

Chris Womack
Chairman, President and Chief Executive Officer, Georgia Power at Southern

Yeah. Right now, we are scheduled to end a prudence on fuel load at 4. So that's the schedule and that's the path we're taking. That's the agreement arrangement we have with the Georgia Public Service Commission.

Nick Campanella
Analyst at Credit Suisse Group

Okay. Some mid-summer here. All right. Thank you so much.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Thank you.

Operator

We have a question from Paul Fremont with Ladenburg. Please go ahead. Your line is open.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Hello, Paul. Always glad to have you with us.

Paul Fremont
Analyst at Ladenburg Thalmann Financial Services

Thank you so much. Going back to Unit 3, the flow through on the reactor cooler -- coolant pumps, is that a valve issue as well or is that something else?

Tom Fanning
Chairman and Chief Executive Officer at Southern

I think -- we're still kind of running it down. It could be a calibration issue. It could just be the way we measure the flow going through. So we're trying to guess what it is at this point. It is really not practical. They're doing all the work necessary to get to the bottom of that.

Paul Fremont
Analyst at Ladenburg Thalmann Financial Services

Okay. And the valve issue that you talked about with the drips, that's completely resolved?

Tom Fanning
Chairman and Chief Executive Officer at Southern

Think so. Yeah. I talked to Pete Sena, gosh, 11:30 today. And he saw that it was taken care of. We'll see.

Paul Fremont
Analyst at Ladenburg Thalmann Financial Services

And then how many ITAAC approvals do you think you need to move forward and actually do hot functional testing?

Tom Fanning
Chairman and Chief Executive Officer at Southern

Zero. We're good.

Paul Fremont
Analyst at Ladenburg Thalmann Financial Services

Okay. Because I thought on Unit 3, there were a certain number of ITAACs that you thought were nuclear-related, where you didn't feel comfortable doing the hot functional testing without having those in hand.

Tom Fanning
Chairman and Chief Executive Officer at Southern

No. I think you are remembering fuel load there.

Paul Fremont
Analyst at Ladenburg Thalmann Financial Services

Okay.

Tom Fanning
Chairman and Chief Executive Officer at Southern

We're in awfully good shape and if you look at where we are on 4 as compared to 3 as in relation to HFT, we are light-years better. I mean we're ready to go. All we got to do is finish the required tests before we get the heat going and run the plant. That really is the critical path at this point.

Paul Fremont
Analyst at Ladenburg Thalmann Financial Services

And then last question from me. If you were to do the additional capex beyond the base, does that also not require equity or does equity come with that?

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

Yeah. Based on our current projections, we would still not project any equity. And that's where when I talked about having that cushion in our credit metrics. That plays a big part there.

Paul Fremont
Analyst at Ladenburg Thalmann Financial Services

Okay. Great. That's it from me. Thank you so much.

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

Thank you, Paul.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Thank you, Paul.

Operator

And we have a question from Anthony Crowdell with Mizuho. Please go ahead. Your line is open.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Anthony, how are you?

Anthony Crowdell
Analyst at Mizuho Bank

Not bad, Tom. How are you doing?

Tom Fanning
Chairman and Chief Executive Officer at Southern

Fantastic, my friend.

Anthony Crowdell
Analyst at Mizuho Bank

Congrats to all. And I just have one quick follow-up from Durgesh's question on the credit side of the world. Just with the units going in-service, do you think credit agencies, lower the downgrade threshold because of the, I guess, reduced business risk?

Dan Tucker
Executive Vice President and Chief Financial Officer at Southern

Yeah. Look, Anthony, I never want to speak for the agencies. I would say from my own observations, companies that look like us that aren't currently building nuclear units, many of them have lower threshold, so I think there's certainly a strong argument for that to potentially take place.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Won't speak for them but they should.

Anthony Crowdell
Analyst at Mizuho Bank

Well, thanks so much. That's all I had. Everything else has been answered.

Tom Fanning
Chairman and Chief Executive Officer at Southern

Thanks, my friend.

Operator

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

Tom Fanning
Chairman and Chief Executive Officer at Southern

Yeah, yeah. Really appreciate you guys joining us. It's an exciting year. 2023 is going to be an exciting year. Gosh, we have our annual meeting where I turn over President and CEO. I guess I've already turned over President but CEO to Chris. Wouldn't it be great, Chris, to have Unit 3 under our belt by then?

Chris Womack
Chairman, President and Chief Executive Officer, Georgia Power at Southern

That'd be wonderful.

Tom Fanning
Chairman and Chief Executive Officer at Southern

You guys are going to love Womack. The funny story I tell everybody. When I first got this job, I have always been friends of his but admired his wisdom, intelligence, his work ethic, his can-do attitude. And the very first thing I did when I got the job was move his office from down the hall right next to mine. And I can tell you that Chris has been a thought leader and a partner of mine throughout my tenure. He'll be ready to go day one to carry this company forward.

And when you look at people like Kim Greene and Stan Connally and Jim Carr and all the -- and Jeff, people and all the other people that are in these positions, I think it's an awfully strong team. It's the envy of our industry, an embarrassment of riches in some respects. And I think Southern, especially post-Vogtle, is going to be a bit like a rocket ship, if I could say that. We're going to be doing great.

So thank you, all. It's been a pleasure knowing you all and working with you, and we'll see you soon. Thank you.

Operator

[Operator Closing Remarks]

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