The Southern Company - Q2 2024

Transcript

Operator (participant)

Good afternoon. My name is Sherry, and I will be your conference operator today. At this time, I would like to welcome everybody to The Southern Company's Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 (VP of Investor Relations and Treasurer)

Thank you, Sherry. Good afternoon, and welcome to Southern Company's Second Quarter 2024 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 forward-looking statements today in addition to providing historical information. Various important factors could cause actual results to differ materially from those indicated in our forward-looking statements, including those discussed in our Form 10-K, Form 10-Q, and subsequent filings. In addition, we'll present non-GAAP financial information on 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. Now I'll turn the call over to Chris.

Chris Womack (Chairman, President and CEO)

Thank you, Scott, and good afternoon, and thank you for joining us today. As you can see from the materials we released this morning, we reported strong adjusted earnings results for the second quarter, meaningfully ahead of the estimate provided last quarter. We believe we are well positioned to achieve our financial objectives for 2024. All our businesses, electric and gas, are performing well, and we continue to see both economic resilience and economic growth, especially within our Southeast service territories. During the most recent heatwave across the Southeast, our dedicated employees, supported by our coordinated planning, ensured our electric system delivered outstanding reliability and resiliency for the customers and communities that we are privileged to serve.

Last quarter represented the warmest second quarter in the last 38 years, with a peak electric load of over 38,000 MW, the third highest June peak electric load on record for the Southern Company system. We take tremendous pride in our ability to reliably serve our customers through all operating conditions. Our performance continues to highlight the value of the integrated, regulated framework in which we operate. Coordinating, planning for generation and transmission, as well as our robust portfolio of natural gas transportation, capacity, and storage, have positioned us to effectively manage peak demand needs. This same framework, including our orderly, internal, and external regulatory processes for long-term demand planning and resource decisions, is what also positions us so well to reliably serve the significant electric load growth projected over the next decade, an opportunity we are excited about.

Dan, I'll now turn the call over to you for a financial update.

Dan Tucker (CFO)

Thanks, Chris, and good afternoon, everyone. For the second quarter of 2024, our adjusted earnings per share was $1.10 per share, 31 cents higher than the second quarter of 2023 and 20 cents above our estimate. The primary drivers of our performance for the quarter, compared to last year, were continued investment in our state-regulated utilities and warmer than normal weather for our electric subsidiaries. This was somewhat offset by higher interest and depreciation expenses. A complete reconciliation of year-over-year earnings is included in the materials we released this morning. Our adjusted EPS estimate for the third quarter is $1.30 per share. As Chris noted, all of our businesses experienced a strong second quarter, leading to adjusted financial results meaningfully higher than our estimate of 90 cents per share.

The warmer than normal weather in the second quarter contributed to these results, as well as our continued focus on managing operating costs. Additionally, during the second quarter, we experienced higher than expected weather-adjusted electricity sales in our commercial customer class. These higher sales were driven by a combination of continued strength in our local economies, as well as increased usage by many of our existing data center customers. In fact, sales to existing data centers for the quarter were up approximately 17% year-over-year.

The strong Southeast economy, including favorable business climates and expansions in manufacturing, continues to drive net in-migration and customer growth. For the second quarter, we saw residential customer additions of 14,000 in our electric businesses and 6,000 in our natural gas distribution businesses. We also continue to see strong economic development activity across our electric service territories.

The aggregate pipeline for potential new industrial and commercial customers across our three-state electric utility footprint includes nearly 200 projects and over 30 GW of potential load over the next decade or so. While it's likely these numbers include some degree of duplication as in potential projects, as some prospective customers are evaluating multiple states that we serve for their facilities, these numbers are significantly higher than what we've seen historically. About 40% of the projects in the pipeline and 80% of the potential electric load are data centers. In addition to data centers, clean energy and transportation manufacturing, port-related businesses, and other heavy industries continue to be attracted to our states due to reliable energy, a diverse workforce, robust transportation networks, and a low cost of living, all compelling reasons to locate or expand in our southeastern states.

The potential load growth from this pipeline that is reflected in our forecast is currently only a fraction of this full potential. As a reminder, during our year-end earnings call in February, we updated our forecast to reflect projected retail electric sales growth that is expected to accelerate in the latter part of this decade, with a projected growth rate of approximately 6% from 2025 to 2028. The underlying Georgia Power projected sales growth is approximately 9% over the same period. In response to this growth, Georgia Power filed, and the Georgia Public Service Commission subsequently approved earlier this year, its 2023 Integrated Resource Plan update.

Since the time of the original filing last year, Georgia Power's pipeline of potential large load additions by the mid-2030s has grown approximately 40%, and the amount of committed peak demand over the same time frame has more than doubled, now totaling over 7 GW. As we described in detail on our last earnings call, we continue to execute on our disciplined approach to attracting, serving, pricing, and forecasting this potential incremental electric load. And we continue to expect that our disciplined approach to pricing this new load should result in revenues that not only cover the incremental cost to serve these new customers, it also provides economic benefits to existing customers. Chris, I'll now turn the call back over to you.

Chris Womack (Chairman, President and CEO)

Thanks, Dan. Southern Company remains focused on execution, and we're excited about the future. We believe we are well positioned to capture the value of this significant electricity demand for the benefits of all stakeholders. Our orderly, improving processes for engaging with prospective customers and for addressing resource need with our regulators, differentiates Southern Company from our peers and helps mitigate risk for our customers and our investors.

Additionally, prospective electric customers are increasingly recognizing the value of our institutional experience and wherewithal, the value of the great states we operate in, and the value of the vertically integrated, regulated utility model. Before taking your questions this afternoon, I'd like to take a moment to recognize the hundreds of team members from Alabama Power, Georgia Power, and Mississippi Power, who recently returned home after aiding in power restorations in Texas following the devastation caused by Hurricane Beryl.

These teams and others from across our industry worked tirelessly to bring relief to affected communities, and their performance throughout the successful restoration effort stands as a testament that our employees are at their very best when conditions are at their worst. Let me conclude by saying, we have delivered very strong operational and financial results for the first half of this year. We will remain focused on continuing to execute on our plan, and we believe that we are extraordinarily well positioned to deliver the superior performance that you expect from us for the remainder of the year. Operator, we're now ready to take your questions.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. One moment, please, while we pull for questions. Our first question is from Carly Davenport with Goldman Sachs. Please proceed.

Carly Davenport (VP of Equity Research)

Hey, good afternoon.

Chris Womack (Chairman, President and CEO)

Good afternoon, Carly.

Carly Davenport (VP of Equity Research)

How are you? Thanks so much for taking the questions. Maybe just to start on the quarter itself, I guess, just with the significant beat relative to your initial $0.90 guidance, sort of how are you thinking about the puts and takes around the full year guidance and your execution there at this point?

Dan Tucker (CFO)

Look, we're always very cautious. While we're halfway through the year, there's a lot of year left to go, and in particular, with our electric utilities being in the Southeast, the summer is a pretty big period from a revenue perspective. So we've typically kind of honed in on a more specific expectation after our third quarter call.

That said, to your point, we are incredibly well positioned. We're off to a great start. And what we also have a history of doing is really taking that kind of opportunity and doing anything and everything that we can to not only deliver on the current year, but use that as an opportunity to improve our positioning for future years. So that might look like advancing maintenance work out of future years into 2024 or getting ahead on other programs. There are reliability reserves.

We have the opportunity to kinda optimize in some of our states. And so with how we're positioned, we're working hard to do all those things, focus on this year, but focus on the long term. But, you know, all that to say, given how we started, if we, you know, don't end up in the top half of our range, I think Chris and I would be disappointed.

Chris Womack (Chairman, President and CEO)

But I think, Dan, I think as we say internally a lot, when we have the opportunity to fix the roof while the sun is shining, and so thinking about 2024 and 2025 and 2026, those are some things we'll consider as we continue to move forward through this year.

Carly Davenport (VP of Equity Research)

Great. Appreciate that color. And then the follow-up, just would love to get your perspectives on nuclear as it continues to gain focus here. I guess, what do you think the industry needs to do to support the build-out of new large-scale nuclear? And, and as you think about the 2025 Georgia IRP filing, is there any potential to see nuclear play a role there?

Chris Womack (Chairman, President and CEO)

Carly, I mean, I think the industry has got to continue to do all the planning, all the reviews, working with industries to look at what all the possibilities may be. I think to ultimately get that build out and get the momentum, we've got to have incredible leadership from the government, to make this a, a reality. We know there are risks, and I think we all must find ways, and I think support from the government can help mitigate some of that risk. So I think that is the critical element in terms of really gaining the momentum to build on what we got done by completing Vogtle Units 3 and 4. I think it's got to be a part of the future, it's got to be a part of the mix.

We've got to have diverse resources to meet this demand we see going forward, and nuclear's got to play a very prominent part in that role. But I think it needs to be great leadership from the government to really kind of help build the momentum that we need to see. I mean, I'll leave it at that.

Carly Davenport (VP of Equity Research)

Great. Thanks so much for the comments.

Operator (participant)

Our next question is from Shar Pourreza with Guggenheim Partners. Please proceed.

Chris Womack (Chairman, President and CEO)

What's up, Shar? How are you doing, guys?

Shar Pourreza (Senior Managing Director of Energy/Power/Utilities)

Hey, guys. Good. How are you doing, Chris?

Chris Womack (Chairman, President and CEO)

Doing great, man.

Shar Pourreza (Senior Managing Director of Energy/Power/Utilities)

Excellent. So Dan, I can maybe a quick one for Dan. Dan, I can totally appreciate the conservativeness and sort of how you're messaging around this year, but, like, obviously, like, we are seeing, you know, much stronger, the reality of your sort of footprint is much stronger than kind of your planning assumptions, right? And I know you've talked about in the past that maybe you can provide an update in the fourth quarter or potentially EI time frame of what all this kind of means to your longer-range guidance. I guess, what other trigger points are you looking for outside of sustainability around this load backdrop to really revisit how you guys think about a longer-range plan?

Dan Tucker (CFO)

Shar, I think it does. You know, and I know you said besides sustainability, but it really is rooted in that notion of continued momentum. Look, I think we feel good about what we know and see right in front of us, and that's a large part of what we addressed in this recent Georgia proceeding. We've got the 2025 IRP ahead of us that will provide an opportunity to kind of further button up the latter part of the decade and into the next decade for, again, what we kind of know sitting here today.

The opportunity, and it certainly feels like there is continued increased momentum. The opportunity is that assuming that continues, there will inevitably be more capital investment needed to serve continued load growth, whether that's in the form of new generation resources, certainly transmission improvements around the system.

But the thing I wanna balance all of that with, and I think we've continued to say this: this is really a later in the decade phenomenon. This is not a 2025 thing, this is it's starting to bleed into 2026, but because of the long-term nature of these capital investments, because of the long-term nature of building out these data centers, this is an opportunity that sustains beyond the current forecast period, the kind of financial profile and strength that we see.

Shar Pourreza (Senior Managing Director of Energy/Power/Utilities)

Okay. Got it. That's helpful. And then maybe just, Chris, on your end, I know obviously, we've got a Georgia GRC coming. It's gonna come sooner than we think. There's been some noise around sort of ROEs and equity ratios maybe being overly adequate now that Vogtle is online from just some of the commissioners. Can you maybe just talk this through a bit? Is this gonna be an issue as you prep for the case? Have you begun discussions kind of with stakeholders ahead of this filing? Thanks.

Chris Womack (Chairman, President and CEO)

Shar, you know, I mean, there's always conversations about those matters as we go through those proceedings, and so I would not, you know, I would not, you know, be surprised. I mean, We always have good deliberations about those issues in terms of where we are and recognizing the level of service that we provide and the premium nature of how we run this business. I mean, equity ratio also came from a tax reform issue, not just from Vogtle. I mean, so there are a lot of implications, and so as usual, as we go through 2025, all of these issues, I think, will be thoroughly vetted and thoroughly debated, recognized, and also, once again, as I said, recognizing how we perform as a company.

Dan Tucker (CFO)

Yeah, you know, I just-

Shar Pourreza (Senior Managing Director of Energy/Power/Utilities)

Got it.

Dan Tucker (CFO)

The equity ratio kind of changes were broad-based, right? This is not just a Georgia conversation. It was in all of our states, and Chris made the point, that was for tax reform. It was coincidentally during the construction of Vogtle, but had nothing to do with the Vogtle construction itself. So unless there's some major change to the tax policy that has implications, I think, you know, defending that is where we will start from.

Shar Pourreza (Senior Managing Director of Energy/Power/Utilities)

... Okay, that's helpful. Thank you so much, Dan, Chris. We'll see you soon.

Chris Womack (Chairman, President and CEO)

Thanks, Shar. I hope, too.

Operator (participant)

Our next question is from Julien Dumoulin-Smith with Jefferies. Please proceed.

Chris Womack (Chairman, President and CEO)

Julien!

Dan Tucker (CFO)

Are you there, Julien?

Julien Dumoulin-Smith (Analyst)

Yeah. Oh, hey, how you guys doing? Sorry, I was on mute there.

Chris Womack (Chairman, President and CEO)

Hey, Julien, how are you, man? How are you?

Julien Dumoulin-Smith (Analyst)

Good, good, good. Pleasure, guys.

Chris Womack (Chairman, President and CEO)

Hey, man-

Julien Dumoulin-Smith (Analyst)

Absolutely doing well. Thank you.

Chris Womack (Chairman, President and CEO)

Hey, hey, congratulations on your child.

Julien Dumoulin-Smith (Analyst)

All right. Thank you so much. I appreciate it. It's been a busy month, all right, I got to tell you.

Chris Womack (Chairman, President and CEO)

Hope you're getting some sleep.

Julien Dumoulin-Smith (Analyst)

One of these days, seriously, getting this lunchtime. Look, speaking of having the sun shining, you guys are starting the year off pretty well. It's nice to see. Maybe to turning that into a specific question, you know, you've got this $1.30 out there. Just to kick it off, you've probably seen some continuation of that good weather from 2Q into 3Q. Is that already reflected in that $1.30, or is there some more upside there? 'Cause you already had $0.10 versus normal in the second quarter.

Dan Tucker (CFO)

So what we would typically do, Julien, and what we've certainly done in this case, is put out a quarterly estimate that is weather normal. You know, there's always still at least two months left in the quarter when we put these out. And just anecdotally, I would say, I think this is the first day in about three weeks that it hasn't rained here in Atlanta, so I'm not so sure that July has looked like June did.

Julien Dumoulin-Smith (Analyst)

Ah, sounds like Texas, as far as rain goes. Anyway, just to keep going on that, in terms of the backdrop of the load growth, I just wanna make sure I'm hearing you clearly on this, right? The 17% is phenomenal on the data center load growth. How do you think about that number in terms of the medium and longer term, right? You've obviously provided some very healthy longer-term load growth numbers. Should we expect that to continue to compound kind of consistently through the period here? Or to what extent, actually, could we see an acceleration of that number here? I mean, you know, there's a lot of talk about building infrastructure, but you guys are realizing it in a much more tangible way than perhaps some of your peers.

Dan Tucker (CFO)

Great question. So let me just kind of clarify the dynamics that are happening. That 17% that we referred to is existing data centers that are on the ground, have been on the ground, and they're either in the process of ramping to their full load, or in some cases, what we believe is also happening is some of these are actually improving the technology in the data centers with, you know, not only increasing processing capabilities, but that's also utilizing a little bit more electricity in the process. What will happen going forward, while this dynamic will be there, you know, this is a small component of our overall commercial sales today.

Everything we've been talking about in terms of what drives that 6% sales growth from 2025 to 2028, you know, 9% at Georgia Power, those are new data centers, and so it will be a significant acceleration that begins to happen in the, you know, 2026, 2027, 2028 time frame and beyond, as these data centers are completed, and they, too, will have their own ramp-ups to the point where overall commercial sales growth, implicit in that 6%, will be in the double digits.

Julien Dumoulin-Smith (Analyst)

Right. But the point is, you know, while 17% looks phenomenal off the existing base, the acceleration is obviously accentuated in 2026 onwards, and we should see continued ramping of the existing base in 2025.

Dan Tucker (CFO)

It will become a bit-

Julien Dumoulin-Smith (Analyst)

Excellent. All right, guys, I'll leave it there. Thank you.

Dan Tucker (CFO)

All right. Thank you, Julien.

Operator (participant)

Our next question is from David Arcaro with Morgan Stanley. Please proceed.

David Arcaro (Executive Director of Equity Research)

Hey, thanks so much for taking my question.

Chris Womack (Chairman, President and CEO)

Good afternoon, David.

David Arcaro (Executive Director of Equity Research)

You know, a great commentary here just on the load growth that you're seeing in data center commentary. Are you tracking ahead of that 6% assumption? I feel like things are pretty fluid and moving quickly. Are there indications that it could be stronger from here?

Dan Tucker (CFO)

I think given how the pipeline is evolving, there are indications the long term could certainly be stronger. So again, we're talking into the decade, into the 2030s. The way that is building and the momentum is very promising. In terms of the very near term, David, and, you know, like the 17% we were just talking about, even if that swung a little bit, it's such a small piece today, it's not gonna have a meaningful impact on, on kind of current results. It, it really is about the capital being deployed in the big hyperscale data centers that are due to, to be online a little bit, in, in here in a few years.

David Arcaro (Executive Director of Equity Research)

Yep, got it. That makes sense. And I was thinking about the load growth overall. And, let's see. The other item I just wanted to check on, there was a valve issue at Vogtle 3 recently. Just wondering if you had any feedback on that, kind of the extent of that issue, and anything else to watch for there?

Chris Womack (Chairman, President and CEO)

Yeah, no, they worked through that issue, and the unit is now back online, and Vogtle 3 has operated more than 98% its capacity factor over the period. So those things will happen with new units, but we're very pleased with the performance of Vogtle 3 and Vogtle 4.

David Arcaro (Executive Director of Equity Research)

Yep. Okay, great.

Chris Womack (Chairman, President and CEO)

Yeah.

David Arcaro (Executive Director of Equity Research)

Thanks so much. I'll leave it there.

Operator (participant)

Our next question is from Steve Fleishman with Wolfe Research. Please proceed.

Chris Womack (Chairman, President and CEO)

Hey, Steve.

Steve Fleishman (Managing Director and Senior Analyst)

Hi, good afternoon. Hi, Chris. First, just wanted to clarify on the data center. So I think on the Q1 call, you gave a number of pipeline of 21 GW, firm commitment of 6.2 GW, by the mid-2030s. Does that sound right?

Dan Tucker (CFO)

Yeah.

Steve Fleishman (Managing Director and Senior Analyst)

What are those numbers, you know, what are those numbers now?

Dan Tucker (CFO)

Sure. So I'm going to even take it a little bit further back, Steve, because I think the progression here is important. So you know, you mentioned the 21 GW. That was where we were as of our last call, and that's compared to 17 GW back when we originally filed the 2023 IRP update at Georgia Power. So it had grown 4,000 GW. As we sit here today, that 21 GW is 24.3 GW in terms of the total pipeline. You mentioned the commitments. The commitments were a significant change from the original filing last quarter, so it went from 3.6 GW to 6.2 GW. And then from, from the last earnings call to today, that 6.2 is now 7.3.

Steve Fleishman (Managing Director and Senior Analyst)

Got it. Okay, that's helpful. And then, totally separate question, you know, on Kinder Morgan's call, they mentioned expanding the SONAT system with $3 billion, I think, growth investment, and kind of, I think, implied that you would represent half of it. And could you just talk to your thoughts on that and likelihood you'll do that?

Dan Tucker (CFO)

Yeah, look, it's really early for that, so yes, we're a 50% partner on Southern Natural. There is a project that is proposed that total capital is $3 billion. Our share would be $1.5 billion. It's just really early days. You know how these projects evolve. Look, we're very encouraged by it. It's, you know, it's 90%+, I believe, you know, brownfield, existing rights-of-way, a tremendous opportunity there. We will kind of, you know, at the right time, down the road, once this thing has solidified a little bit more, there's some traction from a FERC perspective in terms of approval, kind of reflect that more in our outlook. But that's still, that, all that said, it's an encouraging opportunity.

Chris Womack (Chairman, President and CEO)

Steve, the only thing I would add, man, I think Dan said it, but it's just very early on in that process. I think there's a great deal of diligence to be done, but I think at this point in time, I think the thing to note is that's just very early on in that consideration.

Steve Fleishman (Managing Director and Senior Analyst)

Okay. Last question, I'm gonna... Yeah.

Dan Tucker (CFO)

As you can see, just policy-wise, I mean, we're excited about it. To the extent that we can get this done, it's important for everything else that's happening, right? To the extent that all this large load is down the road, has the opportunity to be served with more gas, capacity like this is really important.

Chris Womack (Chairman, President and CEO)

Yeah.

Dan Tucker (CFO)

And so we're super supportive of it.

Chris Womack (Chairman, President and CEO)

Yeah, Steve, let me add one more, one more thing on that. I mean, and we talk a lot about the importance of this country building infrastructure. So these kinds of things need to happen to support this economy going forward. But for us, it's just very early on, but it's some things that this country must embrace and must move forward on.

Steve Fleishman (Managing Director and Senior Analyst)

Okay, one last question, just going back to my first topic on data centers. Can you just remind me how you define firm commitments relative to pipeline for data centers?

Dan Tucker (CFO)

Yeah. So the commitment we're characterizing is essentially a signed request for service within our service territory. It's a commitment by the customer to be at a particular level, it's a commitment by us to provide the service. And then a lot of these commitments have kind of further papering, if you will, that goes beyond those kind of key elements where it's, you know, commitments for local infrastructure, commitments around pricing, commitments around the ramp.

And so there, there's clearly different stages here. I think importantly, because, you know, we argue with ourselves, you know, what is the right nomenclature for this? What's the right word to really characterize this? Because commitment sounds like something that's, you know, completely fixed and unreversible. The reality is, we have these commitments, these requests for services, and over time, there's puts and takes.

In fact, in the numbers I shared with you a few minutes ago, Steve, there were puts and takes in there. But net-net, the megawatts are still going up.

Chris Womack (Chairman, President and CEO)

And Steve, last earnings call, we went through this, I guess, process, this orderly process that we go through internal, in terms of confirming that this load is in fact real. And so if you look, remember some of that, I mean, that's kind of the discipline in which we, you know, look at these projects to make sure they are real, that they've demonstrated a commitment to the state, that they've selected our utility companies. I mean, so it's a very orderly and disciplined process that we go through because, like I said, we've been in this economic development business for a very, very long time. I mean, we're in the market each and every day, engaging with customers. But we know how this plays out. We know how it works. And so for us-...

as well as for them, it's important to understand what's real in terms of and what it means to have a commitment. So we spend a lot of time working on this.

Dan Tucker (CFO)

And so importantly, just last thing, Steve. Just to clarify, commitment for us does not mean it's in our forecast. There's further risk adjustment from there. We know that things will get delayed. We know that the actual peak load alluded to may not show up to that extent, but there'll be load, but not that much. So we're risk adjusting beyond this commitment level to be as conservative but also as pragmatic as we can with the forecast.

Steve Fleishman (Managing Director and Senior Analyst)

And then lastly, the 9% Georgia Power growth rate, that was based off of the initial numbers that you gave at the end of 2023?

Dan Tucker (CFO)

Correct.

Steve Fleishman (Managing Director and Senior Analyst)

Or when you made the filing. Okay. So these updates-

Dan Tucker (CFO)

And that was that the-

Steve Fleishman (Managing Director and Senior Analyst)

Yeah.

Dan Tucker (CFO)

Yes, there is potential for those to evolve, and I think that's what we will see where we are at the time of the 2025 IRP filing.

Steve Fleishman (Managing Director and Senior Analyst)

Thank you.

Dan Tucker (CFO)

Yeah, thank you, Steve.

Chris Womack (Chairman, President and CEO)

Thank you.

Operator (participant)

Our next question is from Nick Campanella with Barclays. Please proceed.

Nick Campanella (Senior Equity Research Analyst)

Hey, thanks. Hope everyone's doing well.

Chris Womack (Chairman, President and CEO)

Yes, we are.

Nick Campanella (Senior Equity Research Analyst)

I am. It's hot. Hey, a lot of questions have been answered, but I guess just, you know, I know that there's been potential for DOE loans to enter the portfolio, and hopefully that's coming up soon. But just can you just remind us, you know, how that could affect, you know, your overall financing plans and what could maybe be on the table, if anything?

Dan Tucker (CFO)

Sure, Nick. Happy to. So look, there we believe, and you know, the devil will be in the details as we work through this process with the DOE loan office. There could be big round numbers, eligible capital in the range of $15 billion-$20 billion over the next, I don't know, seven to eight years or so, that could qualify for this. And the program allows that qualified capital to be financed up to 80% of the qualifying amount. So that's a significant amount of debt financing that could be done through a very low-cost source relative to the capital markets. Implication of that is a potential tremendous benefit to customers over time, not unlike what we had with Vogtle three and four, in terms of the loan program there.

Again, this program could potentially be 3-4 times the size of the Vogtle 3 and 4 program, which created tremendous savings for customers.

Nick Campanella (Senior Equity Research Analyst)

Hey, I appreciate that. And, you know, maybe just one conceptual question here. Just, we've heard about economic development on your call, on all of your peers' calls, this earnings season. The tailwinds continue to be very strong. I can't help but notice that some economic and industrial indicators are now starting to roll. You know, ISM indicators this morning were at their lowest since the pandemic. And I guess my question is just what's differentiating your service territory, you think, on the economic development side? And then, you know, is this just all kind of chalking up to maybe you guys being conservative in this five to seven outlook and waiting for it to come? Thanks.

Chris Womack (Chairman, President and CEO)

No, and we talked about it earlier, on this call, about the reliability and the performance of our company, the cost of living in the territory, the transportation hubs and access and resources that we have here, the, the kind of business climate. Alabama was recently recognized by CNBC as a top state to do business in, and so the great advancements there. So I think a collection of things that are occurring across this Southeastern territory has really made it-- has been attractive for a, for a long period of time and continues to make this part of the country very attractive.

And so I think we have a lot of good things going for us, and so we're kind of excited about where we are, and it shows up in the pipeline of business and the projects that are currently in the queue in all of our states, all of our southeastern states. So I think it speaks well for the characteristics of our state and where we are. And also, I think our vertically integrated model also supports kind of this is a good place to come and do business.

Nick Campanella (Senior Equity Research Analyst)

Thanks for those thoughts.

Dan Tucker (CFO)

Thank you, Nick.

Operator (participant)

Our next question is from Durgesh Chopra with Evercore ISI. Please proceed.

Dan Tucker (CFO)

Hey, Durgesh.

Durgesh Chopra (Managing Director)

Hey, Dan. Good afternoon. Thanks for taking my questions. Hey, just, Dan, as we think about your forward-looking guidance and your 2024 base, you've obviously, you know, started the year phenomenally, year to date, materially above the plan, but there's some one-timers in there, like weather. So as we think about our models and, you know, 2026, 2027 EPS estimates and beyond, are you, when you rebase or whenever you provide this guidance at Q4, are you gonna exclude, you know, these one-time benefits in 2024? I'm just, I'm just trying to think of what should be the base of the new 5 to 7, if you will.

Dan Tucker (CFO)

Yeah. The base for the 5-7 is the current guidance in 2024, $3.95-$4.05. The way to think about, so you mentioned weather as an example, Durgesh. You heard us describe kind of, you know, the notion of fixing the roof while the sun is shining, advancing maintenance out of future years and this year. If you looked back over the course of time at our O&M spend, while on average, it's probably flattish to down over time, year to year, it's more of a sine wave. 'Cause again, what we're doing is managing the short term, taking advantage of opportunities like warmer than normal summers, colder than normal winters, such that in other years where we have milder weather, 2023 being a great example, we have the flexibility to spend less.

And so we're managing to a regular, predictable, kind of sustainable result year in and year out, despite what might be characterized as one-time things.

Durgesh Chopra (Managing Director)

Got it. Okay. So basically—Sorry, go ahead. Oh, I'm sorry, there was some background noise there. I get it. Thank you very, thank you very much. And then just, one quick follow-up on credit metrics and FFO to debt. I think this year in—this is from the Q1 call, I believe, but you were kind of trending towards 14% by the end of this year, and then 16%-17% by the end of the planning period in 2028. You know, how—Does that outlook get strengthened here, given the year-to-date outperformance as we think about the end of 2024?

Dan Tucker (CFO)

I think we are where we were. You know, you heard Chris and I allude to, you know, maybe being disappointed if we're not in the top half of the range, so maybe there's some incremental benefit for 2024. But I think in terms of the trajectory we're on, we are exactly where we were and how you described it.

Durgesh Chopra (Managing Director)

Okay, perfect. Thanks again for giving me time.

Dan Tucker (CFO)

Yeah, you bet.

Operator (participant)

Our next question is from Jeremy Tonet with J.P. Morgan. Please proceed.

Jeremy Tonet (Research Analyst and Managing Director)

Hi, good afternoon.

Chris Womack (Chairman, President and CEO)

Good afternoon, Jeremy.

Jeremy Tonet (Research Analyst and Managing Director)

Just wanted to come back to the SONAT expansion, if I could, and the open season. Was just wondering if you were able to share any color on shipper interest there and whether that was, that was largely for Southern or there was others that came in with, with good demand there?

Chris Womack (Chairman, President and CEO)

Jeremy, I think it's very premature. I mean, it is. We have no insight or perspective on that at this time. It's just very early in the process.

Jeremy Tonet (Research Analyst and Managing Director)

Got it. Fair enough. And then, just wondering, you know, as, as you sit back today, how you think about the current business mix in jurisdictional exposure, as the electric backdrop is changing for load growth? Is there any rotation of assets or, that you might be interested in here?

Dan Tucker (CFO)

Yeah, I just, I don't think we're there. I mean, we love the portfolio we have. We've done a lot of work over the years to kinda hone it to the portfolio it is today. We've got great electric and gas jurisdictions at large. You know, we've got great complements with Southern Power. So, no, I don't think... There's certainly no designs on anything like that as we sit here today.

Jeremy Tonet (Research Analyst and Managing Director)

Got it. Fair enough. Thank you, very much.

Chris Womack (Chairman, President and CEO)

Thank you.

Dan Tucker (CFO)

Yeah, thank you.

Operator (participant)

Our next question is from Travis Miller with Morningstar, Inc. Please proceed.

Travis Miller (Senior Equity Analyst)

Good afternoon.

Chris Womack (Chairman, President and CEO)

Hey, Travis.

Travis Miller (Senior Equity Analyst)

Hi there. Back to the data center conversation. As you go through those numbers, and you talked about risk adjusting and all of that, what are the regulatory hurdles, the state regulatory hurdles that you face in terms of thinking about that risk adjustment and some of those numbers actually coming to fruition?

Chris Womack (Chairman, President and CEO)

Yeah, once again, Travis, you know, as we go back to a pretty detailed conversation we had on our last call, it's also going to the commissions to confirm the reality of the projects, understanding what the risks are, understanding the pricing that needs to take place, that makes sure that we are working with these customers to really fully load, understand what their incremental costs are and their marginal costs are, and how we price that, so that we also, when we do this, we're providing benefits to the rest of the customers in terms of what sometimes we refer to as downward pressure.

So just as we work to confirm reality and commitments, but also then risk, do risk adjusting, having that same kind of process and conversation with the regulatory jurisdictions in terms of understanding the reality and then understanding the financial and pricing implications. And so one of the things I feel real good about is this kind of orderly process that we have to work through this with the commissions, but also the ability to work through this with, with the respective customers. So I just feel real good about kind of our process to, to give order to sometimes what looks like a lot of chaos in this marketplace.

I think we have the experience, we have the wherewithal, we have these constructive regulatory environments, and we have the framework to do this, I think, in a way that makes sure that it's orderly and disciplined and provides benefits to all stakeholders.

Travis Miller (Senior Equity Analyst)

Sure, sure. And do each of those contracts need official regulatory sign-off, or can you negotiate those without regulatory sign-off, state regulatory sign-off?

Chris Womack (Chairman, President and CEO)

Yeah. We can negotiate that without regulatory approval.

Travis Miller (Senior Equity Analyst)

Okay. Very good. And then real quick, what's the long-term planning process timing in Alabama and Mississippi, in terms of when we might get more information on data center load or total CNI load growth there?

Chris Womack (Chairman, President and CEO)

You'll see those conversations, I think, on a regular basis annually. I mean, it's a little different than what happens in Georgia, but as they look at their plans and look at the issues and needs that show up, I mean, they'll take that to the commissions for certification.

Travis Miller (Senior Equity Analyst)

Okay, great. I appreciate it. Thanks.

Operator (participant)

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

Chris Womack (Chairman, President and CEO)

Again, thanks, everybody, for taking time to be with us. We feel good about where we are as a company and how we're performing and executing, and we're incredibly excited about the future. Thanks for being with us today, and be safe.

Operator (participant)

Thank you, ladies and gentlemen. This concludes the Southern Company's second quarter 2024 earnings call. You may now disconnect.