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The Southern Company

Southern Company's Guidance and Outlook

Earnings Per Share (EPS) Guidance

  • 2023:
    • Adjusted EPS: $3.65, at the top of the guidance range.
    • Full-year guidance: $3.55 to $3.65 per share.
  • 2024:
    • Adjusted EPS guidance: $3.95 to $4.05 per share.
    • Fourth-quarter estimate: $0.49 per share.
    • Expected long-term adjusted EPS growth rate: 5% to 7% from the 2024 range.
  • 2025 and Beyond:
    • The company expects to maintain a 5% to 7% EPS growth rate, with potential for an upward bias if the momentum in economic development and load growth continues.
    • EPS growth is expected to be off a higher base as the company capitalizes on increased sales and capital investments.

Capital Investment Plan

  • Current Capital Plan:

    • Total 5-year capital investment forecast: $48 billion.
    • Incremental capital investment: Approximately $5 billion increase relative to the previous forecast, driven by economic development and load growth.
    • Focus on state-regulated utility investments, with over 95% of capital attributed to these businesses.

  • Future Capital Needs:

    • The company anticipates further capital increases to serve growing peak demands, particularly in Georgia, where load growth is expected to accelerate.
    • Potential for additional investments in renewable energy and natural gas infrastructure to support the growing demand.
    • Capital plans will be updated periodically, with significant updates expected in the 2025 IRP process.

Sales Growth Projections

  • Short-Term (2024-2025):
    • Expected to remain around 1% to 2% as the impact of new load growth is not fully realized yet.
  • Mid-Term (2025-2028):
    • Projected to accelerate to an average of approximately 6% annually for Southern Company, with Georgia Power's sales growth projected at about 9% annually.
    • This growth is driven by new manufacturing facilities, data centers, and other economic development activities.

Rate Base Growth

  • Projected Rate Base Growth:
    • Currently estimated at approximately 6% annually, supporting the long-term outlook.
    • Potential for upward pressure on rate base growth as the company responds to increased load demands, particularly in Georgia.

Dividend Policy

  • Current Dividend Growth:
    • Annual dividend increase: $0.08 per share, resulting in a payout ratio of around 77% for 2023.
    • The company aims to bring the payout ratio down into the 60s over time, allowing for potential reconsideration of dividend growth rates.
  • Future Dividend Increases:
    • The Board will evaluate increasing the dividend growth rate once the payout ratio reaches a more sustainable level, likely after Vogtle Unit 4 is fully operational and the company moves into a steady state.

Economic Development and Load Growth

  • Georgia:

    • Significant economic development activity is driving unprecedented load growth.
    • The 2023 IRP update proposes additional investments to meet the growing electricity demand.
    • Data centers represent approximately 80% of the emerging load, with new projects expected to contribute substantially to sales growth starting in late 2025 or early 2026.

  • Alabama and Mississippi:

    • Similar economic development momentum is observed, with potential for load growth in these states as well.
    • Alabama Power may need to postpone some plant retirements to meet increased demand, particularly for coal units scheduled to retire in 2028, which may be extended into the 2030s.

Regulatory and Financing Considerations

  • Credit Metrics:

    • Target FFO-to-debt ratio: Around 17% by the mid-2020s, with gradual improvement from 14% in 2023 to over 15% in 2024.
    • The company will maintain a disciplined approach to financing, balancing debt and equity to preserve its credit profile.

  • Financing Strategy:

    • Use of DRIP (Dividend Reinvestment Plan) to generate between $350 million and $400 million annually.
    • Potential use of an ATM (At-The-Market) program to finance incremental capital needs.
    • The company will avoid over-leveraging and aims to maintain a balanced sheet while accommodating growth.

Key Risks and Mitigations

  • Interest Rate Environment:
    • Higher interest rates pose a headwind, but the company is managing this through disciplined capital allocation and creative financing strategies.
  • Storm Costs:
    • The company incurred approximately $1.1 billion in costs related to Hurricane Helene, with all costs deferred and expected to be recovered over time.
  • Nuclear Projects:
    • Vogtle Units 3 and 4 are now operational, with Unit 4 expected to be in service by April 2024.
    • The company remains cautious about new nuclear projects until risks are mitigated, either through government support or technological advancements.

Strategic Initiatives

  • Focus on Affordability:
    • The company aims to balance new investments with affordability, ensuring that new load growth provides economic benefits to existing customers.
  • Renewable Energy and Carbon-Free Solutions:
    • Continued investment in renewable energy projects, including solar and wind, to support the transition to cleaner energy.
    • Collaboration with federal agencies and hyperscalers to explore carbon-free solutions, including green hydrogen and advanced nuclear technologies.

Conclusion

Southern Company is well-positioned to capitalize on significant economic development and load growth in its service territories, particularly in Georgia. The company's disciplined approach to capital allocation, coupled with its strong credit profile and focus on affordability, supports a robust long-term outlook. The company remains committed to delivering value to shareholders while ensuring reliable and affordable energy for its customers.

Last updated on 01/14/2025 05:14 AM

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