Q2 2024 Earnings Summary
- Significant Load Growth Driven by Data Centers: Southern Company is experiencing substantial load growth, particularly from data centers. Sales to existing data centers increased approximately 17% year-over-year in Q2 2024. New data centers are expected to drive accelerated growth, with projected electric sales growth of 6% from 2025 to 2028, and approximately 9% growth at Georgia Power over the same period.
- Robust Economic Development and Customer Growth: The Southeast service territories continue to see strong economic growth, with favorable business climates driving net in-migration and customer growth. In Q2 2024, residential customer additions were 14,000 in electric businesses and 6,000 in natural gas distribution businesses. The pipeline includes nearly 200 projects and over 30 gigawatts of potential load over the next decade, with about 40% of projects and 80% of potential load being data centers.
- Strong Financial Performance and Positive Outlook: In Q2 2024, adjusted earnings per share were $1.10, $0.31 higher than Q2 2023 and $0.20 above their estimate. Management anticipates ending the year in the top half of their guidance range , with a disciplined approach to managing costs positioning the company well for continued strong performance.
- Upcoming Georgia rate case may pose risks to ROE and equity ratios, as there is "noise around sort of ROEs and equity ratios maybe being overly adequate now that Vogtle is online from just some of the commissioners".
- Significant capital expenditure plans ($15–$20 billion over next 7–8 years) could impact financing and balance sheet, as the company considers DOE loans to fund eligible capital, which "could be big round numbers, eligible capital in the range of $15 billion to $20 billion over the next, I don't know, 7 to 8 years or so".
- Credit metrics may not improve despite strong performance, with FFO to debt ratios expected to remain at prior levels, as "we are where we were... in terms of the trajectory we're on, we are exactly where we were and how you described it".
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Data Center Load Growth
Q: Is data center load growth exceeding expectations?
A: Data center commitments have increased from 3.6 GW to 7.3 GW, with the total pipeline growing to 24.3 GW since the initial 2023 IRP filing. This acceleration is expected to drive double-digit commercial sales growth starting in 2026 as new hyperscale data centers come online. -
Earnings Guidance and Outlook
Q: Are you likely to exceed your full-year earnings guidance?
A: The company is well-positioned and off to a great start. Management anticipates ending up in the top half of the guidance range, leveraging current success to improve future positioning. -
Capital Investment Needs
Q: Will you need more capital investments due to load growth?
A: Continued load growth, especially from data centers, will require additional capital investments in new generation and transmission starting in 2026. This expansion sustains the company's financial strength beyond the current forecast period. -
Potential SONAT Expansion
Q: What's the status of the SONAT pipeline expansion?
A: There's a proposed $3 billion expansion of the SONAT system, with Southern Company's share being $1.5 billion. While it's an encouraging opportunity, it's still in the early stages and subject to further diligence and approvals. -
DOE Loan Program Impact
Q: How will DOE loans affect your financing plans?
A: The company may access $15–$20 billion in DOE loans over the next 7–8 years, financing up to 80% of eligible capital. This low-cost debt could be 3–4 times larger than the Vogtle 3 and 4 loan program, offering significant customer savings. -
Vogtle 3 Performance
Q: Is Vogtle 3 operating as expected after recent issues?
A: Vogtle 3 experienced a valve issue but is now back online, operating at over 98% capacity factor. Management is pleased with the performance of both Vogtle 3 and 4. -
Regulatory Outlook on ROE
Q: Are you concerned about regulatory changes to ROE and equity ratios?
A: Upcoming proceedings will thoroughly vet these issues. Equity ratio adjustments were due to tax reform, not just Vogtle, and management plans to defend their positions based on company performance. -
Role of Nuclear Energy
Q: Will nuclear energy play a role in your future plans?
A: Nuclear must be part of the future energy mix to meet increasing demand. Success depends on government leadership to mitigate risks and support new large-scale nuclear facilities. -
Credit Metrics Trajectory
Q: Has year-to-date performance strengthened your credit outlook?
A: The company remains on track to achieve FFO/debt ratios of 14% by year-end and 16–17% by 2028. While outperformance may offer incremental benefits, overall plans remain consistent. -
Asset Portfolio Strategy
Q: Are you considering rotating any assets in your portfolio?
A: There are no plans to rotate assets; the company is content with its current portfolio and has no designs on changes. -
Data Center Contracts
Q: Do data center contracts require regulatory approval?
A: Contracts with data centers can be negotiated without regulatory approval. Management works closely with commissions to confirm project realities and pricing, benefiting all stakeholders. -
Economic Development Factors
Q: What's attracting businesses to your service territory?
A: The region's reliability, cost of living, transportation hubs, and favorable business climate make it attractive. For example, Alabama was recognized as a top state to do business. -
Load Growth in Other States
Q: When will we learn more about load growth in Alabama and Mississippi?
A: Planning processes in these states involve regular annual updates, with issues taken to commissions for certification as needs arise.
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