Southern Company (SO) — Q3 2025 Earnings Call Transcript

Thanks, Diego. Good afternoon, and welcome to The Southern Company's Third quarter 2025 earnings call. Joining me today are Chris Womack, Chairman, President and Chief Executive Officer of Southern Company; and David Poroch, Chief Financial Officer. Let me remind you that we will make forward-looking statements today in addition to providing historical information. Various important factors could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K, Form 10-Qs and subsequent securities filings. In addition, we will 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. At this time, I'll turn the call over to Chris.

Thank you, Greg, and good afternoon to everyone, and we thank you for joining us for today's update. Southern Company continues to perform exceptionally well. As you can see from the materials that we released this morning, we reported strong adjusted earnings results for the third quarter, meaningfully above the estimate provided last quarter, and we expect to deliver on our financial objectives for 2025. And I have to say Southern Company has an incredibly bright future ahead. Our state-regulated electric and gas utilities continue to provide long-term value to the more than 9 million customers across the Southeast and beyond with reliable and affordable energy. The vertically integrated markets in which our electric utilities operate continue to provide transparent and orderly processes and have consistently supported our ability to meet the needs of our growing economies and electric demand while providing premier reliability and resilient service day in and day out. We've done all of this while keeping customers' rates more than 10% below the national average. Further, the rate plan extension at Georgia Power, which freezes base rates until at least 2029, excluding the recovery of storm-related costs, is a testament to the benefits of a constructive regulatory framework and our focus on balancing growth and affordability. Customers continue to be at the center of everything we do. Our focus on the customer underpins our disciplined approach to forecasting, pricing, contracting and deploying resources to serve this once-in-a-generation growth opportunity. And we continue to execute on those plans for the benefits of all of our customers. Over the last 2 months, we have signed 4 contracts with large load customers across Georgia and Alabama, representing over 2 gigawatts of demand. Consistent with our approach across Southern Company, these contracts include pricing and terms that are designed to pay for the incremental cost to serve new customer demand while also benefiting and protecting existing customers, helping to ensure growth does not come at the expense of affordability. I will now turn the call over to David to give an update on our financial performance.

Thanks, Chris, and good afternoon, everyone. For the third quarter of 2025, our adjusted earnings per share was $1.60, exceeding our estimate by $0.10 and up $0.17 from the same quarter last year. The key factors contributing to our performance were ongoing investments in our state-regulated utilities, strong customer growth, and increased customer usage. However, these positives were somewhat balanced by milder weather compared to previous years, along with higher depreciation, amortization, and interest costs. For the nine months ending September 30, 2025, our adjusted EPS was $3.76, compared to adjusted earnings of $3.56 for the same period in 2024. Year-to-date, revenue from our state-regulated electric utilities increased, influenced by customer growth and higher usage, adding $0.12 year-over-year. A full reconciliation of year-over-year earnings can be found in the materials we released this morning. Our estimated adjusted EPS for the fourth quarter is $0.54, which, combined with our year-to-date performance, would place our full-year adjusted earnings at the upper end of our 2025 guidance range of $4.30 per share. Regarding retail electricity sales, year-to-date weather-normal sales increased by 1.8% compared to the first three quarters of 2024. These weather-normal sales are on track for the highest annual increase since 2010, excluding the pandemic, reflecting growth across all three customer segments. In the third quarter alone, the commercial sector reported a 3.5% growth under weather-normal conditions compared to the same quarter last year. This growth was partly due to increased sales to both existing and new customers, including a 17% rise in new data centers. Weather-normal residential sales also exhibited strong growth, increasing by 2.7% from the third quarter of 2024, aided by the addition of approximately 12,000 new electric customers in the quarter, significantly outpacing historical trends. Sales to individual customers also showed continued strength, growing 1.5% compared to the previous year. Year-to-date, all our major industrial customer segments showed year-over-year growth, including primary metals, paper, and transportation, each rising by 4% or more in the first three quarters. Economic development activity in our electric service areas remains strong, with 22 companies announcing plans to establish or expand operations during the third quarter, which could generate nearly 5,000 new jobs and represent expected capital investments of about $2.8 billion. With robust customer growth, increasing customer usage in the commercial and industrial sectors, and thriving economic development in our service areas, the economy in the Southeast is strong and well positioned. Now, turning to our financing activities, I’d like to update you on our progress regarding future equity needs. In the third quarter, we issued $4 billion in long-term debt through Alabama Power, Georgia Power, Southern Company Gas, and Southern Power. The quality and credit strength of our subsidiaries continue to attract significant investor interest. This strong demand for our subsidiary securities results in lower interest costs, benefiting our customers at our regulated subsidiaries in the long run. With these issuances, along with those made in the first half of the year, we have covered our long-term debt financing requirements for 2025 across all subsidiaries. On the equity financing side, we maintain a proactive approach and have made significant strides in sourcing equity in a disciplined, credit-supportive manner. This approach reflects our commitment to credit quality, which includes strong investment-grade credit ratings from all three major rating agencies. We will continue to utilize equity or equity equivalents to achieve our goal of 17% funds from operations to debt within our planning horizon. This long-term credit quality objective is designed to provide a cushion for the quantitative credit metric targets set by the rating agencies. As mentioned in our July earnings call, we expect a cumulative equity need of $9 billion through 2029 to fund our $76 billion capital investment plan while maintaining credit quality. Since our last earnings call, we have priced an additional $1.8 billion of equity through forward sales agreements under our at-the-market program. These forward equity contracts have settlement dates extending through mid-2027, with the option to call sooner if desired. This advancement and the flexibility it offers significantly mitigate risks in our financing strategies. Considering these ATM forward sales, other hybrid security issuances, and projected issuances under our internal equity plans, we have secured over $7 billion of our $9 billion equity need through 2029. We are well positioned to address the remaining amounts in a manner that favors our shareholders. Looking ahead, as we continue to implement strong customer protections and credit provisions, our pipeline of large load data centers and manufacturers remains strong. Our electric subsidiaries have a total pipeline of over 50 gigawatts of potential incremental load by the mid-2030s. Our cautious approach to forecasting assumes only a fraction of this future load materializes. As Chris noted earlier, in the past two months, we have signed four contracts across Southern Company's system representing over 2 gigawatts of load. Projects in our pipeline are moving toward executed contracts, which, along with their associated load increases over the coming years, solidifies a significant portion of our forecasted electric sales growth of 8% annually through 2029, including an average annual growth of 12% for Georgia Power during the same timeframe. In Alabama, Georgia, and Mississippi, we currently have contracts in place with large load customers, representing 7 gigawatts through 2029, expected to rise to 8 gigawatts in the 2030s, with advanced discussions for several additional gigawatts of load. I will now hand the call back to Chris for further insights into our progress.

Thank you, David. As David noted, we have made great progress with signing new large load contracts. Just last month, as a part of Georgia Power's ongoing RFP certification proceedings, Georgia Power filed an update to its load forecast. This update forecast continues to project the capacity need consistent with the 10 gigawatts of capacity resources being requested, which include 5 natural gas combined cycle units and 11 battery energy storage facilities. These proceedings are scheduled to have a final determination by the commission by the end of this year. Separately, Alabama Power, following approvals from the Alabama Public Service Commission and the Federal Energy Regulatory Commission, has completed the acquisition of the 900-megawatt Lindsay Hill natural gas generating facility to serve projected long-term capacity needs in the state. In addition, construction continues on approximately 2.5 gigawatts of new generation in both Georgia and Alabama, which includes 3 natural gas combustion turbines and 7 battery storage facilities, all of which are projected to go online over the next 2 years. Further, the South System 4 expansion at Southern Natural Gas within our Southern Company Gas subsidiary continues to move forward and will provide a valuable resource in serving the projected growth in our service territories. It is clear that we continue to make great progress executing on our plan as we deliver exceptional value to customers and investors. Consistent with our past practice and representative of our continued discipline, we expect to provide a complete update to our long-term plan during our fourth quarter 2025 earnings call this coming February. As always, this update will include refreshes to our 5-year capital investment outlook, sales forecast and financing plans as well as our 2026 and long-term EPS guidance. Consistent with our comments throughout 2025, as a part of that communication, we expect to provide additional clarity on our long-term earnings trajectory, which, as we've highlighted before, could translate into increasing the base from where our long-term EPS growth starts, which could be potentially as early as 2027. We have delivered exceptional operational and solid financial results through the first 3 quarters of the year. Just this week, Southern Company was named to Newsweek's World's Most Trustworthy Companies for 2025 list and was the highest ranked energy company in the United States on that list. Recognized companies were identified in an independent survey, and our inclusion at the top of this list is a testament to the hard work and unwavering commitment of our employees to uphold our values and operate each day at the highest standards of integrity, transparency, and accountability. We are honored by this recognition, and I am incredibly proud of our team and the execution across all of our businesses. In conclusion, we're extraordinarily well positioned to finish the year strong. We have the team, we have the experience, and the scale to capture and execute on the exciting opportunities in front of us. We really have a bright and exciting future ahead. Operator, we're now ready to take questions.

I have no idea how I got on the list for questions because I didn't ask one, but I appreciate that. I didn't have any questions.

Maybe to start just on the kind of load growth outlook in Georgia, I guess, as you continue to lock in contracts under the new tariff structure there, can you talk a little bit about the reception from customers to the new structure and also how you approach the minimum bill components and ensure cost recovery from investments to support that load?

Yes, Carly, thank you for the great question. As we've discussed, we are now operating under the new rules established by the Georgia Public Service Commission that were implemented in the spring. What we're seeing is that customers completely understand the long-term commitments we are making to allocate resources for their needs. These new rules have effectively prioritized more reliable and serious partners. We have made significant progress in structuring these contracts, which include strong protections for both our customers and investors. The minimum bills we have established cover all of our costs, regardless of meter usage. As customer demand increases, this structure proves beneficial for both the company and our customers. We are very pleased with the educational efforts we've undertaken over the past year, which explain why it has taken some time to finalize these contracts. We are guiding customers through the process to ensure their protection moving forward through these agreements.

Great. Really helpful. And then maybe the follow-up, just on the Georgia regulatory environment, just with the upcoming certifications and potential for incremental needs on the generation side for approval. How are you thinking about potential impacts from the PSC election and those processes as you think about the longer-term plan?

Yes, Carly, let's start with the election question first. Elections in Georgia for the 2 commission seats, they will be held next Tuesday. We've had a couple of weeks of early voting. I mean one of the things we talk a lot about in all of our states is that we have an incredibly long history of working constructively with whomever is in those seats. And the 5 seats that are occupied in Georgia, they've always brought different views and perspectives. And so we expect that will, in fact, be the same. And so we'll work with whomever is there. And as those positions are filled, I mean, they keep the citizens in mind as well as we keep our customers in mind. So we have a lot of alignment there. So we've always constructively worked with whomever has been elected in those seats.

And Carly, you asked about status and kind of where we are. Recall that in September, Georgia Power filed an updated load forecast and testimony. And that load forecast, using the same methodologies as several months ago, discounting forecasted load and risk adjusting that, supported the need for the whole 10 gigawatts that we're requesting. And that process is ongoing. So we're going to have staff and other interveners file their testimony in the next couple of weeks, I think. And we're scheduled to get a ruling from the commission, I think it's December 19, latter part of December. But all that should be wrapped up, and we'll see the results before year-end.

Chris, can we talk about the rebasing? You use the same language again about as early as '27. And a lot of folks are very curious to understand what the metrics that you're looking at, whether it's operational or regulatory or just frankly, incremental signed data center deals to get you comfortable to make it more of a firmer timeline for that rebasing. Any thoughts that you'd observe here on how you're thinking about that timeline?

Julien, I mean, I think we've said. I mean there's not kind of an exact list. I mean there are a lot of things that we're going to look at to make that decision. I mean how is the economy performing, what's happening with interest rates? I mean where are we with large load contracts? I mean just a number of factors, I think, that has to go into that consideration to give us the confidence and certainty to make that kind of decision. And so I mean, as we said before, I mean, clearly, there's a lot more meat on the bone in terms of where we are and how that decision needs to be made. But yes, I mean, that's something we'll work through, and we'll give you more clarity on that in our February call for next year.

Awesome. Excellent. And a little bit more of a nitpicky question. The $9 billion of equity you guys talked about here a second ago, in theory, if you were to get this incremental $5 billion, how do you think about that being reflected in that $9 billion?

The upside that we discussed in the second quarter call, Julien, you mean?

Yes. That's all in there, right?

No. Actually, the upside to the extent that the Georgia Public Service Commission approves all of our requests, we had talked about that being about another $4 billion of incremental capital. And that's likely to be financed kind of in that neighborhood of about 40% equity going forward. So once we get clarity on that, we'll be able to execute on that plan.

And there's a little rounding out there, right, between the $4 billion and the $5 billion with gas, I think it is, if I understand all the number?

You're exactly right, Julien. The $4 billion relates specifically to the remainder of that request at the Georgia Public Service Commission. And we've talked about opportunities within our FERC-regulated jurisdictions in the gas infrastructure business, and that's about $1 billion. So you're exactly on point.

Let me shift gears to Southern Power. There are many opportunities there, and you have existing tolling agreements that will begin to expire. How should we consider the assets, their value, and the pricing environment? Have any discussions taken place? Are there chances to renegotiate these tolls before they expire, considering the asset values?

Yes. As we've mentioned, a significant portion of these assets is secured under long-term contracts, approximately 95% through 2029. You're correct that where opportunities arise, we will begin discussions toward the end of these contracts to renegotiate and renew when suitable. We're observing a few real-time indicators, particularly with the recent RFP approved in Georgia. Southern Power successfully won two PPAs through a competitive bidding process that will commence in the early 2030s, and they've been repriced to nearly two to three times their current value. If the market remains stable, we anticipate excellent opportunities in the future as these contracts expire, allowing us to renegotiate and recommit the assets moving forward.

Got it. Okay. Perfect. And then just lastly, just obviously, you guys talked about the amount of gas that's needed in the Southeast. Just around the SNG pipeline expansion, any thoughts on timing there? How are the conversations going with the counterparties?

The SNG expansion is progressing well and is on schedule. We've mentioned that this project involves an investment of approximately $3 billion, with our company holding a 50% stake. The project is moving forward as planned, and we anticipate significant interest in contracting that capacity. The pipeline runs through our area, and we believe it will meet our needs as well as those of surrounding states. We are looking forward to completing this project.

Okay. Perfect. And then just lastly, if I could just slip one quick one on the equity question. Chris, there's been obviously some pretty healthy transactions that have been done around partial asset sales. Some of your peers have done it. They have been successful. It's been accretive. But just want to get a sense on have you considered sort of other avenues versus these equity or equity-like instruments and even can some parts of Southern Power be opportunities there? We're just focusing on equity and equity-like.

Shar, we don't comment on kind of speculative transactions or rumors or kind of these broad questions. We're always looking to see who is the best owner of a given asset. And that's something that we'll always look around corners and make those kinds of decisions. And I think it's a little bit premature. But yes, I mean, that's something that we'll always give deep considerations to. We like our cards. We like the portfolio that we have. But I mean, there's some things we'll always take a look at.

You mentioned in the fourth quarter call that you would provide a capital refresh and possibly an update on the EPS CAGR. I believe you hinted at discussing the base starting in 2027. My question is whether we will also receive guidance for 2027 during the fourth quarter call.

Anthony, we've been talking about this opportunity for a good little while. And as we've seen this kind of momentum around developing these contracts come to fruition, it is pretty unique. And those contracts that we've talked about are kind of coming into play in the latter part of our planning horizon. So we do expect to be able to share some clarity on that. Like Chris talked about, a lot of things are in the mix. And as we move forward in getting these contracts taken care of, we'll be able to share what that clarity looks like in February.

Great. And then just last question. And I apologize I have the timing wrong. I believe from your last call to this call, I believe Moody's put the holding company on a negative outlook. Your equity needs had already announced before. Does that negative outlook or maybe change the view of maybe pulling forward or the timing of that remainder $2 billion of equity?

We believe we have a strong strategy in place to reach a 17% FFO to debt ratio. It's essential for us to maintain our high credit ratings, as we see this as the basis for premium equity. Our goal is to create a buffer toward the 16% threshold, which is where we would face a downgrade. We're progressing toward 17%, and we have observed improvements in both qualitative and quantitative aspects. The successful execution of equity issuances and bringing contracts to completion is positive. We will remain proactive and disciplined in our approach and will keep the rating agencies informed about our advancements toward the 17% target in our planning.

I have a quick question regarding nuclear. Southern has mentioned before the significance of nuclear development for the country's future. We've also noticed government support beginning to advance projects in various regions. I'm curious if there are any specific initiatives or government backing that would make it easier for Southern to expand Vogtle or consider pursuing small modular reactors.

I want to express my excitement about the actions taken by the administration with Westinghouse, Cameco, and Brookfield regarding their collaboration. These efforts are crucial for advancing new nuclear power in our country. With the increasing demand for energy, it is essential that we take steps to build new units. The recent announcements and the President's executive orders on regulatory matters are significant and play a vital role in supporting the development of new nuclear facilities. These new units could operate for 60 to 80 years, addressing current and future demand well into the next century. It is important to acknowledge the leadership role the government must take to manage risks and find ways to mitigate them. I am very enthusiastic about the progress being made by this administration.

Forgive me, I'm not sure if I heard an answer to that last question. Does all of that federal government activity change your appetite? I appreciate the industry commentary, but what about your appetite?

Not at this time.

Okay. But that wasn't my original question. My original question was on Slide 9. I'm interested. So you showed the demand from large load customers for 2029 and then the mid-30s. What strikes me is it's a fairly small change, only 1 incremental gigawatt is contracted and 1 additional gigawatt of committed. How much of that would you say is the same projects ramping up their demand versus an incremental project or projects coming online between those years? And then to what degree would you say the small increase is conservatism or risk adjusting or however you want to call it? It just seems like a fairly small delta relative to the trends and commentary.

Yes. No, I get where you're coming from. What we wanted to try to display in this chart, so I appreciate your question, is that the entire 7 gigs on the 2029 column is included in the 2030 column. And so what we're trying to reflect there is ramp-up, timing, and our expectations and projections based on the contracts that we have as well as in the committed section, that's reflective of the conversations that we've been having and the modeling that we've been doing through the negotiations. And so those ramp-ups do take a minute and those are projected to kind of be over about a 5-year period. It's a little different from contract to contract because obviously, these are tailor-made contracts, bilateral negotiations, not necessarily at all a unique large load tariff. And so these are tailor-made and reflect our expectations around the ramp-up.

So looking at the 10 gigawatt large load contracted or committed numbers by 2029, I guess, I was just wondering if there's still a further opportunity to add on more gigawatts there to bring on more large load by the 2029 time frame? Or are you seeing system constraints or limits in terms of absorbing additional data centers in the near term?

I think the ability to bring on more is out there. I mean so the answer to your question is, yes, there's more capacity, more opportunity. And yes, we are in advanced discussions and advanced considerations with other large load companies in terms of looking at more possibilities. So yes, there are more upside opportunities for the latter part of this decade.

Could you describe the plan for the next set of RFPs? Specifically, what years are we looking at for when those will come into service, and when might you consider issuing those RFPs to start receiving bids?

Sure. So remember, that '25 IRP stipulation allowed for another all-source RFP to begin as early as 2026. And at the moment, we don't really have any size or parameters. We're just working through that and assessing our needs. We need to get through the processes in place at the moment, and then we'll look to the future. And that could be in the early 2030s, maybe 2032-ish, but we'll have to wait and see how that plays out, and we'll have more clarity next year. But we're really encouraged by the conversations that we've been having and the momentum continues to build, not just in Georgia, but around the service territories.

So my first question about contract-based gas fired new build. So in the past, you guys were saying that you're still waiting to see demand or interest in like fully loaded economics for gas-fired new builds for Southern Power. And I'm wondering if we've already achieved that point? Or is it still a waiting period?

For recontracting at Southern Power? I just want to make sure I understand the question.

No, so like building a brand new combined cycles for a hyperscaler or whoever under a long-term contract by Southern Power meeting your return expectations? If you've already seen offers at levels that you would consider interesting?

We continue to evaluate. And recall, I think we talked about it probably several times in the past that Southern Power, we run with a pretty high filter. We have high credit quality counterparties, long-term in nature, locking up the capacity, and no fuel risk. So as we find those opportunities that fit into that box, we'll definitely pursue them. And at the moment, we're just still evaluating.

So the answer is no, you haven't seen them, or you’re still sort of debating if the terms are attractive?

Yes, we're evaluating and having some conversations around that.

Yes. I mean I can't speak for others, but I'll speak for Southern Company. We are not there yet to make an announcement about a new nuclear plant. As we said many times in the past, we want to make sure that all risks are mitigated before we make that kind of decision. I'm excited about all the activity that's occurring around the country with considerations about new nuclear. But until we find a way to get all the risks mitigated, I mean, that's not a decision that we're going to make. But we're going to continue to work with the administration, work with other government agencies to talk about the importance and the role that new nuclear can play in meeting this growing demand. But being perfectly clear, no, we're not in a position to make that decision at this point until we find ways to make sure all risks are mitigated.

First question is, I just want to understand the difference between contracted and committed. Is that just an ESA versus an LOA? Or what's the distinction there?

Sure. Let's begin with the contract, which is a signed agreement that is relatively straightforward. We are committed to delivering according to the negotiated terms and conditions, and all parties have agreed, so we are moving ahead. The request for service is going through the previously described process where we start with an entity that may be looking at several states, potentially choosing Georgia. We initiate discussions with them, and they will decide on Georgia Power versus other suppliers within the state. This leads to more in-depth conversations, additional collateral being posted, and a more complicated process. Engineering studies are conducted during this time. Our commitment lies in negotiating terms and conditions, pricing, ramp-ups, and other requirements, which signifies that we are in the final stage before actually signing a contract. Therefore, being committed indicates that we are quite advanced in the process, finalizing terms and conditions, completing engineering studies, and nearing the signing of contracts.

Okay. So that's about finalizing agreements. Can you provide an estimate of how many gigawatts are in advanced stage negotiations? I think some of your peers share that additional detail.

Yes. So in that bucket, we're probably in the neighborhood of 12-ish gigs. I mean it's fairly dynamic, and it's across the system.

I'm back. So keeping with the large load popular topic here. If I run through those numbers that you broke out in terms of projects and gigawatts, it looks like average projects somewhere less than 0.5 gigawatt, maybe 300 to 500 megawatts. One, I was wondering if that's kind of a fair assessment of what you're seeing out there? And then, two, what is the extra 50 gigawatts or the next stage look like? We've heard some utilities talking about gigawatt projects, tech companies talking about multiple gigawatt projects. So I wonder if you could characterize the current customers and then the next step?

Okay. Yes. Thank you. So yes, I wouldn't do just the straight math. I mean these are wide-ranging. We've got some on the 100 megawatts of the scale, and then we've got a couple at the north of 1 gigawatt. And so they are really all over the place. And like we've talked about, I mean, each one of these are tailor-made contracts for their own specific needs. So I'd suggest resisting the simple math.

Again, let me thank everybody for joining us today on our call. And as we said before, we have a bright future, and we're looking forward to what's ahead. So thank you very much, and have a great day.