SOUTHERN CO Q3 FY2026 earnings call

• Unprecedented Demand Growth: Electricity demand is rising significantly, with weather-normal sales growth accelerating to 3.5% in Q3 and 2.7% year-to-date. Data center usage surged 59% quarter-over-quarter.
• Economic Development & Investment: The Southeast service territory is on track to double its prior annual record of announced capital investment. Recent announcements include nearly $25 billion in investment and over 5,000 new jobs from companies like Airbus, OpenAI, Corelli, Walmart, Mitsubishi Power, and Audi.
• Large Load Contract Portfolio: The portfolio of signed large load contracts has grown to 21 gigawatts, with an additional 7 gigawatts in late stages across Alabama, Georgia, and Mississippi. Both Alabama Power and Georgia Power added approximately 2 gigawatts each in Q3.
• Rate Stability & Customer Benefits: Management committed to holding base rates flat in Alabama and Georgia until at least 2029. Georgia Power reduced rates in summer 2026, saving typical residential customers nearly $50 annually, with a commitment to deliver nearly $3 billion in customer benefits post-freeze period.
• Infrastructure & Generation Projects: Significant investments are underway, including 400 MW upgrades at Southern Power natural gas facilities, a partnership with Google to unlock nuclear capacity via Georgia Power, and the Southeast Connector Pipeline expansion by Southern Natural Gas.
• Operational Resilience: The company successfully managed record heat and responded to Hurricane Isaias, restoring power to 95% of impacted customers in Alabama within 48 hours using AI-driven resource deployment tools.

Southern Company reported strong adjusted earnings per share (EPS) of $1.94 for the third quarter of 2026, an increase of $0.34 year-over-year and $0.29 above estimates. The primary drivers were warmer weather, increased usage, customer growth, and higher earnings from Southern Power, partially offset by higher non-fuel operating expenses and tax costs. Year-to-date adjusted EPS stands at $4.40, up from $3.76 in the prior year. Specific segment performance metrics regarding absolute revenue contribution percentages were not explicitly broken down in the transcript; however, the company highlighted that commercial sales rose 7.3% and data center usage was up 59%, leading overall electricity demand growth.

• Q4 2026 Guidance: Adjusted EPS is estimated at $0.30 per share.
• Full-Year 2026 Guidance: Full-year adjusted earnings are projected at $4.70, which is $0.10 higher than the top of the original guidance range, representing 9% year-over-year growth.
• Future Outlook: Management indicated strong confidence in potentially raising the upper end of near-term guidance ranges for 2027 and 2028 during the Q4 call, supported by sustained momentum in contract signings and capital deployment.
• Long-Term Capital Plan: The five-year capital plan could approach $100 billion, up from the previously stated $81 billion base, driven by incremental opportunities across regulated utilities and competitive businesses.

• Regulatory & Political Uncertainty: Potential changes in leadership at public service commissions (e.g., party flip in Georgia) and incoming state officials may impact rate cases and regulatory dynamics, particularly regarding affordability concerns and data center development policies.
• Execution Risk on Large Loads: While contracts provide minimum bill protections, there is inherent risk if customer ramp rates do not meet negotiated timelines, though contractual structures are designed to mitigate this through decoupled minimum bills.
• Inflationary Pressures: There is acknowledged upward pressure on generation costs, with benchmarks now exceeding $2 billion per gigawatt due to inflation and infrastructure complexities.
• Policy Risks: Executive orders or legislative actions in states like Georgia could potentially pause or delay new data center developments, posing risks to future load growth projections.

Q: With recent political shifts in Georgia, how does management maintain confidence in regulatory outcomes and rate case progressions given the upcoming end of the current rate settlement? / A: Management expressed high confidence in their ability to share growth benefits with existing customers, citing rate freezes and direct benefits as key tools to address affordability concerns. They emphasized that these measures resonate with voters and regulators, providing a strong platform for engagement with new commissioners. The disciplined approach to conservative guidance and clear communication of customer benefits are seen as critical to navigating the evolving regulatory landscape successfully.

Q: Regarding the potential expansion of the capital plan toward $100 billion, what is the expected breakdown between state-regulated and competitive investments, and how does this impact funding needs? / A: The company plans to remain predominantly focused on state-regulated investments, targeting 90-95% of the total capital allocation, with the remainder involving federally regulated assets like SONAT. To support this growth while maintaining credit quality, the firm aims to fund approximately 40% of incremental investments with equity or equity equivalents. This strategy supports a target FFO-to-debt ratio of 17% by 2029, utilizing various capital markets tools and low-cost DOE loans to ensure financial flexibility.

Q: What specific risks or protections exist regarding large data center loads amid political rhetoric about pausing such developments? / A: Management highlighted that contracted loads have robust protections, including minimum bills that ensure cost recovery regardless of actual usage ramps, effectively decoupling revenue from consumption volatility. They noted that large load customers pay their full share, minimizing burden on existing customers. While acknowledging political conversations around pauses, they expressed confidence in the enforceability of existing contracts and are actively engaging with policymakers to educate them on the economic and community benefits derived from these projects.

Q: How is the company addressing the increasing cost of new generation capacity, specifically regarding the $2 billion per gigawatt benchmark? / A: CFO David Poroch confirmed that the $2 billion per gigawatt figure is a baseline that currently spans past that mark due to inflationary pressures and complex infrastructure requirements. He clarified that this benchmark primarily reflects generating asset capital costs rather than all-in transmission infrastructure. The company continues to evaluate RFP processes in Alabama and Georgia, expecting significant upside in capacity procurement needs into the early 2030s, with final decisions dependent on transparent market bids and regulatory authorization.