SOUTHERN CO Q3 FY2024 earnings call

• Hurricane Helene Response: The storm caused historic damage in Georgia, with over 1.5 million outages, nearly 12,000 damaged utility poles, and 1,500 miles of downed wires. Southern Company's team restored 95% of service within 8 days, with power restored to over 0.5 million customers in the first 48 hours.
• Financial Results: Adjusted earnings per share for Q3 2024 were $1.43, year-to-date adjusted EPS was $3.56. Weather-normalized retail electricity sales were flat, but there were strong customer additions. Economic development pipeline was robust with 36 gigawatts potential load additions by mid-2030s, 8 gigawatts committed.
• Storm Costs: Initial estimated cost for Hurricane Helene recovery is $1.1 billion. Costs are deferred, with distinction between capital and O&M costs to be determined through regulatory processes.

For the third quarter of 2024, adjusted earnings were $1.43 per share, $0.01 higher than the third quarter of 2023. Year-to-date (nine months ended September 30, 2024), adjusted earnings per share were $3.56 compared to $3.01 in the same period in 2023. Weather-normalized total retail electricity sales were essentially flat compared with the third quarter of 2023. There were strong residential customer additions: 12,000 in electric businesses and 7,000 in natural gas distribution businesses. Economic development activity was robust with 42 companies establishing or expanding operations in the service territory in the third quarter, generating over 5,000 potential new jobs and $2.6 billion in capital investments.

• Q4 adjusted EPS estimate is $0.49 per share, leading to full-year adjusted earnings of $4.05 per share.
• Long-term load growth: The 36 gigawatts potential load additions by mid-2030s is a long-term phenomenon, with momentum expected to feather in through the end of the decade and beyond. Capital plan update expected in February, with potential incremental capital from various projects including Southern Power, Georgia Power IRP, and Southern Natural pipeline.

• Regulatory risks: Uncertainty in regulatory processes for storm cost recovery and approval of capital vs O&M costs.
• Legal risks: Potential legal challenges to pipeline expansions, as seen with other projects.
• Nuclear project risks: Significant risks associated with nuclear projects need mitigation before moving forward, including federal government and industry collaboration to address risk.

Q: Hi, good afternoon – Thanks for taking the question. Maybe just to start on the storm cost side. I appreciate the color on the kind of $1.1 billion estimate at this point. Will all of that be deferred? And can you just talk through the process and the timing for filing for recovery of those costs in Georgia?

A: Yes. And pretty usual, Carly, we don't want to get too far ahead of any upcoming regulatory processes or make assumptions about how the commission will ultimately decide to deal with it. Just I think it's good to acknowledge historically. They've been very constructive, and the recovery has been timely and balanced kind of the needs of the company and the customers. In terms of where we sit today, yes, all the costs have been deferred. There is still work to do not unlike just turning estimates into more firm numbers. Again, don't expect material changes there. There's also -- we will also go through a process of determining particularly based on the nature of this rebuild that occurred, not just restoration, how much of these dollars are ultimately capital dollars essentially new assets, as opposed to the cost to support the crews, cost to simply rehang wires, those look -- would typically look more like O&M, but those will be deferred and potentially recovered in a different manner than the capital cost.

Q: Hey, guys, Chris and Dan. I just wanted to maybe start with Southern Power for a second, sort of this kind of push for resource adequacy being so front and center in almost every jurisdiction. I mean Southern Power is predominantly contracted, but I have to imagine kind of the offtakers want to stick with the assets. Are you seeing kind of any opportunities around restriking the contracts and extending the tenors? Are you seeing opportunities as contracts roll off? And how do we think about pricing kind of in this environment and what it could also mean for Southern Power's growth? Thanks.

A: Yes. Let me start, Shar, and just level set on Southern Power. So we've always taken approach to Southern Power to have it -- have a risk profile that looks and feels like the regulated business. So long-term contracts, creditworthy counterparties, we don't take fuel risk. And so that portfolio, and in particular, if we focus in -- on the natural gas generation portfolio, is largely covered, I mean, 90%-plus covered through the end of this decade. And so it's not until then that you begin to have contracts that are up for renewal. Now obviously, we would have an opportunity to renew or extend to your point well before the end of the decade. And so in that context, as we look at the current contract rates relative to what capacity values appear to be out in that time frame, they've essentially doubled relative to what they were. Again, this is a long-term opportunity to kind of improve the returns within Southern Power. So yes, there is great interest in that capacity. Beyond the existing assets, we're also getting pinged, if you will, continuously by customers, hoping to be able to add new assets, whether those be natural gas or renewables, whether that's in the Southeast or in other markets, particularly where we have renewables. And it's the same kind of potential customer mix that we have today. We serve a lot of load-serving entities. So, investor-owned utilities, municipalities, co-ops. But we also, particularly in our renewable portfolio, serve a lot of large commercial and industrial customers directly through contract. They may be in structured markets, but it's ultimately a contract with an individual customer. So we're exploring those too, but maintaining that same discipline I described on the front end, long-term contracts, creditworthy counterparties, no fuel risk.