Southern Co Q1 FY2020 Earnings Call

Good morning. My name is Nelson, and I will be your conference operator today. At this time, I would like to welcome everyone to Southern Company's First Quarter 2020 Earnings Call. Please note, today's call is being recorded Thursday, April 30, 2020. I would now like to turn the call over to Mr. Scott Gammill, Investor Relations Director. Please go ahead, sir.

Thank you, Nelson. Good afternoon, and welcome to Southern Company's First Quarter 2020 Earnings Call. Joining me today are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company; and Drew Evans, 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 the forward-looking statements, including those discussed in our Form 10-K, Form 10-Qs and subsequent 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 Tom Fanning.

Good afternoon and thank you all for joining us. I hope that you're well. As you can see from the materials we released this morning, we reported strong adjusted results for the first quarter, ahead of our estimate. This solid start to the year positions us well as we look to overcome short-term sales impacts from the coronavirus. Drew will provide you with more detail on our financials momentarily, so I will go ahead and turn to our current operating environment, amid the coronavirus pandemic. At Southern Company, our top priority remains keeping every employee healthy and safe, while we continue to provide clean, safe, reliable and affordable energy for our customers. We were well prepared to quickly make necessary adjustments across our business, activating incident response teams throughout the company in February. We continue to execute COVID-19 pandemic plans for our business. To date, our operational performance has been exceptional. We have not experienced nor do we currently foresee supply chain disruptions for our utilities or our construction projects. We often talk about the importance of the reliability and resilience of our electric and natural gas infrastructure, which has delivered remarkably well during this time. In face of COVID-19, our biggest asset has really been the reliability and resiliency of our workforce. I want to thank our employees who have risen to every challenge. We have been resourceful and rapidly procuring and deploying necessary protective equipment and implementing effective protocols to safeguard against the virus. Our operations and customer service teams have continued to work around the clock. We are finding solutions to effectively work in teams remotely, and we are communicating with our workforce and external stakeholders in a whole new way. We've implemented a wide range of projects to support the physical, financial and emotional well-being of our employees during this time as they continue their superb work to support the operation of our company. It's also a hallmark of our company to be a citizen wherever we serve. So we have worked to identify how we can best assist our communities during these difficult times. Southern and its subsidiaries are targeting a commitment of nearly $10 million in foundation and charitable contributions. And our employees have logged thousands of volunteer hours to assist those impacted by the coronavirus pandemic. I expect we will do even more in the coming months. Let’s turn now to an update on Plant Vogtle Units 3 and 4. We remain focused on meeting the November 2021 and November 2022 regulatory-approved in-service dates. And we continue to maintain an aggressive work plan on-site as a tool to help position us to meet those dates. Recall, in February, we refined the aggressive site work plan to reflect a May 2021 completion target for Unit 3 and a March 2022 completion target for Unit 4. We also laid out a November benchmark schedule and related milestone for Unit 3. Through March, production for Unit 3 was generally consistent with the refined aggressive site work plan. April's performance was challenged due to COVID-19 impact, which put us slightly behind the aggressive site work plan. Despite these challenges, today, direct construction is approximately 90% complete. And notably, just late-breaking news, we have just completed open vessel testing. That came in about 1 p.m. today. We also reached several interim construction milestones for Unit 4 during the quarter, including the installation of the polar crane and setting the containment vessel top. Before giving an update on recent productivity, I want to highlight our commitment to the safety of our workforce on-site and in the surrounding community. Since the beginning of the pandemic, we have taken a number of proactive measures intended to protect our workforce and the community against the spread of COVID-19. As we implement these measures, we’ve engaged independent medical advisors to guide our actions to reduce the possible spread of the virus. Among other measures, we have provided additional protective equipment, enhanced sanitation practices and implemented a social distancing strategy, such as spreading out and increasing common areas, eliminating group transportation at the site and mandating those who can telework to do so. Beyond these basics, early on, our protocol on-site ensured that anyone tested and their close contacts will promptly self-isolate off-site. We acted quickly to build an on-site medical clinic, designed to expedite test results, minimize turnaround time for close proximity screening and improve facilitation of clearing personnel to return to work. Throughout this time, we have remained in close consultation with the Nuclear Regulatory Commission and the project's co-owners as well as local and state authorities. We are also consulting with and monitoring other mega projects. Notably last month, the President of the North American Building Trades Unions commended Southern Company for going above and beyond the call of duty to keep their members on the Vogtle construction site safe and healthy. Now turning to our recent progress. Although overall monthly production through March was largely consistent with the refined aggressive site work plan, mechanical, electrical and subcontract activities began to build a backlog to Unit 3 aggressive site work plan at the end of March. That trend was exacerbated through April, as we began experiencing impacts across the site related to the coronavirus pandemic, including an increase in workforce absenteeism. Two weeks ago, in an effort to mitigate the impacts of COVID-19, we announced our intent to reduce density on the site and take workforce down by 20%. As we work through this transition, we expect to see a decrease in near-term production, similar to the sawtooth effects that we have experienced in the past. Longer-term objective is to gain operational efficiencies and productivity by reducing workforce fatigue and absenteeism. As we move ahead, we will continue to evaluate the effectiveness of our streamlined workforce. As you know, we regularly evaluate both costs and schedule, and we have factored recent developments into our ongoing analysis. Looking first at schedule. We are prioritizing key work fronts on Unit 3 and continue to work towards the aggressive site work plan targets, which have been pushed back slightly in light of recent events. The next major milestone for Unit 3 is the start of cold hydro testing, which is currently planned to occur in the June to July timeframe. Considering our expected timing on the start of cold hydro testing, we expect Unit 3 hot functional testing to commence in the August to September timeframe. On the assumption that we are able to stabilize and increase productivity to pre-pandemic levels, we are maintaining the aggressive site work plan targets of year end for Unit 3 fuel load. As a reminder, construction completion of about 2% per month is consistent with the aggressive site work plan. Taking into account our performance to date, we now project that we need to complete approximately 1% per month to meet the November benchmark schedule. Now, this is slightly down from the 1.3% we discussed last quarter. Importantly, even amid the outbreak of the pandemic for April, our construction completion rate was about 1.25%, which supports meeting the November 2021 regulatory-approved in-service dates. Critical areas of focus remain electrical and subcontract performance. Lastly, consistent with the prioritization of Unit 3 and related staffing, we have shifted the target completion date on the aggressive site work plan for Unit 4 back to May 2022, which still provides six months of margin to the regulatory-approved in-service date. Recall, under the refined aggressive site work plan we laid out in February, we accelerated the target completion date for Unit 4 by two months to March. So the current action takes us back to the prior day of May 2022. Turning now to cost. Based on our most recent assessment, there is no change in the total project capital cost forecast. In the first quarter of 2020, Georgia Power allocated an additional $66 million of its project contingency, reflecting cost risks associated with construction productivity, field support, subcontract and procurement, as well as the impacts of the April 2020 reduction in workforce. Recall the estimated cost of time between the aggressive site work plan and the regulatory-approved November in-service date are schedule embedded in Georgia Power's base capital forecast. With this quarter's contingency allocation, the scheduled cost margin and the remaining cost contingency combined continue to represent approximately 20% of the remaining estimated cost to complete. As we have said, we expect to utilize the entirety of the contingency funds as we progress towards the completion of the project. The team at Vogtle Units 3 and 4 have worked incredibly hard to create an environment at the site that has led to meaningful progress over the past few months even while managing through this unprecedented pandemic. The next few months will be pivotal as we adjust to a smaller, more streamlined workforce and seek to improve productivity. The safety of our workforce and the surrounding community remains paramount and we continue to guide our decision making at the site. Importantly, we still expect to meet the November regulatory-approved in-service dates for both Units 3 and 4. Drew, I'll turn it over now to you for an update on our financials and our outlook.

Thanks, Tom, and good afternoon, everybody. I hope you all are well. As Tom mentioned, we had a very strong start to the year. First quarter adjusted EPS was $0.78, which is $0.08 higher than last year and $0.06 above our estimate for the quarter. The primary driver compared to last year was constructive state regulatory actions, which were completed in 2019 at our utilities. In addition, through aggressive cost control, we were able to decrease non-fuel O&M year-over-year, which helped us overcome an impact from warmer-than-normal weather in the first quarter. A detailed reconciliation of our reported and adjusted results is included in today's release and earnings package. Weather-normalized retail sales for the first quarter 2020 were up slightly compared to last year led by our residential customer classes, with only modest impacts from COVID-19 evident in the last two weeks of the quarter. We added over 20,000 new electric and natural gas customers across the system, which is consistent with our expectations. With COVID-19 top of mind, let's go ahead and turn to the assessment of potential business impacts. While we did not see a meaningful earnings impact from COVID-19 in the first quarter, we are continually assessing potential financial impacts on our business. At this time, we do not expect coronavirus impact to materially affect our long-term outlook. Our expected long-term EPS growth rate remains 4% to 6%, our $40 billion five-year capital investment plan is unchanged, we do not foresee a need to issue equity for 2024, liquidity is strong with good access to the capital markets at both the parent and our subsidiaries. And with last week's announcement of a $0.08 annual dividend increase — the 19th consecutive annual increase — we continue to demonstrate our commitment to enhancing shareholder value. As we think about the potential near-term impact of COVID-19 on our 2020 expectations, our key focus areas are sales, bad debt expense and liquidity. Just a moment, I am going to switch microphones so both can hear me better. Starting with sales, as I mentioned, weather-normalized retail sales were up slightly for the first quarter, slightly reflecting higher residential demand. At the end of March, as people began to telework, thus far in April, total estimated weather-normalized electric retail demand is lower than our forecast by approximately 8%. So April loads are historically volatile as customers switch between heating and cooling. We have seen demand stabilize at these approximate levels over the last few weeks. We'll continue to closely monitor trends as businesses within our states begin to reopen. Looking ahead, we are basing our current forecast for 2020 on a U-shaped economic recovery that reflects a mid-summer phase-out of the stay-at-home policies with modest economic recovery across the service territories over the balance of the year. Using these assumptions our projections indicate an overall decline in retail sales for the full year in a range of 2% to 5% on a weather-normalized basis whereas residential up 1% to 3%, commercial down 5% to 10%, and industrial down 4% to 8%. As a reminder, construction completion of about 2% per month is consistent with the aggressive site work plan. Retail sales in these ranges would lower total non-fuel electrical revenue by approximately $250 million to $400 million on a consolidated basis. We plan to mitigate these impacts by continuing to aggressively manage O&M throughout the remainder of the year. While the current situation is unprecedented, we demonstrated a similar level of cost discipline in response to the 2008 and 2009 recession, which gives us confidence in our ability to deliver in the current environment. Of course, actual impacts will be highly dependent on the duration of stay-at-home policies and the pace of economic recovery. As visibility of these factors improves, we will hone our expectations around an appropriate level of cost control. At this time, we do not anticipate significant sales or financial impacts from COVID-19 on Southern Power or Southern Company Gas. Due to the long-term contracted nature of Southern Power's business model, we expect it to be largely insulated from pandemic impacts. Southern Company Gas has already achieved roughly half of its expected full year net income in the first quarter, and we expect earnings over the remainder of the year to be consistent with our forecast. In addition to sales, we are also assessing the potential for an increase in bad debt expense. Specifically, our electric utilities, like many around the country, are not disconnecting customers for nonpayment. And we are temporarily waiving late payment fees. Our state regulators are taking steps to defer incremental bad debt expenses related to this pandemic for recovery in future rate proceedings. In addition, our gas utilities are largely decoupled and may have bad debt mechanisms already in place, which helps to insulate them from both sales and non-payment impacts. We also expect increased federal funding for programs like LIHEAP and certain provisions in the CARES Act to assist eligible customers with bill payment. Including regulatory mechanisms and customer assistance programs, we believe that expense impacts will be largely mitigated. Turning now to liquidity. Depending on the actions we took in the first quarter, Southern's net liquidity at the end of March increased by $800 million relative to year-end 2019 and currently stands at over $7 billion. In the second quarter, we have already taken steps to further strengthen our liquidity position, including completion of a $1 billion issuance at the parent in April. At this juncture, we believe we have ample liquidity for capital investment plans, to protect our dividends, and to weather potential COVID-related volatility in debt markets, as well as elevated periods of customer non-payment. With solid results through the first quarter, our current belief is that O&M reductions can largely offset pandemic-related sales impacts. With peak electric loads still to come, we see no reason to deviate from our current financial objectives. Consistent with historical practice, we will address earnings for the year relative to our EPS guidance after the third quarter. For the second quarter, we assume that pressure on retail sales will persist, so it is too early to predict with precision the overall magnitude, recognizing all of these factors, we are providing adjusted EPS for the second quarter of $0.55. Before I turn it back to Tom, I'd like to give a brief update on some regulatory matters. In March, the Mississippi Public Service Commission unanimously approved the rate settlement between Mississippi Power and staff, resulting in a rate decrease for customers, and an increase in the allowed equity ratio for Mississippi Power to 55%. On the Georgia front, we filed DCM-22 with the Georgia PSC in mid-February, requesting verification and approval of $674 million spend for the period of July through December of 2019. We expect a decision from the PSC in August. Before I turn it back to Tom, I’d like to thank our Southern family for an outstanding job during this period. Everyone has taken the new normal in stride and remained focused on our customers at all levels. You've shown superior performance and total commitment. I hope everyone stays well, and with that I'll turn it back to Tom.

Thanks, Drew. As our nation seeks a path to recovery from the coronavirus pandemic, at Southern Company, we are resolute in our commitment to provide clean, safe, reliable and affordable energy for our customers. To ensure that we are actively supporting recovery efforts, Southern Company and our subsidiaries are engaged with policymakers at both the state and federal level as they make critical decisions about reopening our economies. Notably, Alabama Power's CEO, Mark Crosswhite and I were named as part of the President's Economic Revival Initiative. Along with the work that I do to help lead the Electricity Subsector Coordinating Council, the principal liaison between the federal government and the electric power industry, which has been heavily involved in pandemic recovery efforts. Southern Company continues its leadership at a national level. Before we take your questions, I also want to highlight the extraordinary response of our teams after the recent severe storms. In April, we experienced two successive weekends of devastating tornadoes across our Southeast service territories that damaged or destroyed hundreds of homes and businesses. Our employees on the frontlines worked tirelessly to restore service to the thousands of electric and natural gas customers that were affected by these storms. In the aggregate, we restored service to over 600,000 customers within 24 hours, improved our capacity to work under duress effectively with coronavirus protocols. I am grateful for and extremely proud of the men and women of Southern Company, who continue to work hard each day to deliver value to customers and shareholders during these extraordinary times. In closing, the COVID-19 pandemic will undoubtedly have a lasting impact on the U.S. and global economies and on communities we serve. Under what we currently view as a reasonable economic recovery scenario, we are positioning ourselves to mitigate potential financial impacts on our company through aggressive and thoughtful cost control. The next several months will be particularly instructive for Southern and our utilities as we monitor the pace of recovery, move into the warm summer season and work to increase productivity at Vogtle Units 3 and 4. We expect our business will remain reliable and resilient over the long-term in keeping with our long history of delivering on our commitments to customers, employees and shareholders. Thank you for joining us this afternoon. Operator, we are now ready to take questions.

Thank you. Our first question comes from the line of Shar Pourreza with Guggenheim Partners. Please proceed.

Hello, Shar. How are you?

Hey, guys. Good. How are you doing? So just a couple of questions here. First, just sort of, thinking about some of the moving pieces. We're looking at COVID sales impact for a 2% to 5% reduction versus prior guidance of flat to up 1%, better-than-expected Q1, slightly weaker Q2 guidance versus, I guess, expectations, O&M leverage. We're assuming kind of normal weather, where do you see coming in within your earnings guidance range for the year? And then just remind us the sales growth figures for March and April on slide 11. Are they weather normalized, especially with the recent storms in your jurisdictions. How do we extrapolate, how much of that was weather versus COVID versus anything else?

So with respect to the first question, when we set a guidance range, I think, you know, we broadly think that kind of the midpoint of the range is a place that without all these other impacts we would expect to land. I think we remain consistent with our financial objectives for the year. I will add, I know we received some conversation about should we reaffirm. Let me just hit that real quick. It has never been our practice to reaffirm guidance in interim periods. We give you guidance at the end of the year so that would be late January, February. And then once we get through our peak kind of earnings season, which would be the third quarter that’s when we give an update as to our guidance. We believe we're committed to hitting our financial objectives. Of course, there is uncertainty in front of us, and we run the same uncertainty everybody else does. But with what we know right now with reasonable impacts, we remain committed to everything that we've said so far. So we are sticking with that. I think further evidence of that is the recent increase in dividend. Shar, what else did you want there?

Sorry, just the weather on slide 11, the impacts that you have from March through April. How much is that weather normalized, and how much of it is impacted from COVID versus the recent storms?

That is weather normalized. So virtually all of it. Shar, I think I have just addressed one other piece of your question related to our guidance estimate for second quarter. Second quarter typically is a relatively light quarter for us in terms of total demand and you can imagine that there's a big difference between June’s expectation and April's expectation. We also feel like this is the period where COVID-19 is going to have the greatest amount of impact across the retail customer base, whether it's residential, commercial or industrial. And even though we are putting measures in place to reduce expenses, those will largely be realized over the balance of the period and you're looking at some adjustment to what is a very constrained quarter in terms of sales. Also, if you look at last year, I think we reported $0.18 for the quarter; $0.18 of that mix was weather related. So I think what we're putting out is consistent with what we've already reported for the first quarter.

Yes, Drew, thanks for that. I actually went back over the last eight years and just looked at what did we estimate. And believe it or not, this is within the range of estimates. The kind of low was $0.65. In fact, I want to say, in 2018, we estimated it $0.65. And when you consider you have the effect of the coronavirus impact, who knows, but it seems like a reasonably conservative estimate from my standpoint. I'm okay with it.

Got it. And just on Vogtle, given the impact of COVID and the move to push the aggressive site work plan back to May from March, I know we've in the past talked about being hopeful that we could see the units come online somewhere between the budgeted and the more aggressive timelines. Is that kind of not reality at this point? And I know you will continue to keep that May aggressive schedule until there's zero probability it could be met. What probabilities are the site managers placing now on meeting the aggressive schedule and at what point could you move away from May to something closer to the midpoint between the aggressive and budgeted schedule? Thanks.

Shar, let me pick that. One of the predicates in your question, and that was until there's zero probability. That's really not the case. We've kind of take a reasonable shot, and we stick with that. Look, we have used some margin here. We had an extra month of kind of hidden margin between hot functional test and fuel load. Essentially, we have seen so far losing kind of 10 days to 14 days in the aggressive schedule. We think through May, we'll lose another two weeks. The site people are going to work like crazy to mitigate the loss of that month. But we had a month of, if you will, margin in between now and fuel load that we're just consuming. Is it riskier than it was before? Yes. But it's still a reasonable objective. Otherwise, we wouldn't stick with it, okay? One last point. When we go from in the schedule from fuel load to in-service, recall, we have maintained — and I know this has been a conversation in many earnings calls — we have maintained a six-month schedule there. China did it in 4.5 months, and we think we can meet or beat China. So we actually have a little more margin even to November. So look, November is what matters. We got to beat November, and our eyes are on that. The site continues to believe they can hit a May schedule. Has it gotten more aggressive? Yes. Still is a reasonable shot at it.

Got it. Congrats guys on the results and stay safe, and we'll see you soon.

Sure. Thanks. Same to you.

Thank you. Our next question comes from the line of Steve Fleishman with Wolfe Research. Please proceed.

Hi, Steve.

Hey, Tom. Good afternoon. So has the workforce reduction been implemented now? And did it end up being around 20% that took that plan?

Yes. Yes.

Okay. And is it — maybe just give some color on — obviously, there's different people doing different things there. Are there areas where you need to refill people for certain skills? Or just how does that play out?

Yes. In general, what we were able to do is to bring people off of Unit 4 onto Unit 3. That's how we filled whatever gaps we thought we may see. Recall, and this was in the 8-K, the first reduction was voluntary. And then we moved to what we call rightsizing. So the voluntary effort didn't produce an optimal result for all the work phases that we have at the plant. And remember, as I said in the script and everything else, we're particularly concerned with getting the right mix and the right productivity in electrical and with subcontracts. And so what we did by moving resources away from Unit 4, we bolstered the mix on Unit 3, so that we believe that there's a reasonable shot to maintain the aggressive schedule, which has a May in-service date. So that really is what has happened. Now, the other thing I just want to put out is that, we are in transition. In the script, I mentioned, the idea about this sawtooth effect. And we've seen that every time now, and those of you that follow these calls will remember, that every time we open up a new work phase in the plant, every time we lead to an increase in personnel, and now, even with the decrease in personnel as we remix crews and schedules and everything else, we believe that sawtooth effect will occur. And so, that's why we're being reasonably conservative with May. In other words, we did 1.25% in April, would still beat the 1% that we need for November. May maybe similarly challenged. We hope it's a little better, but don't be surprised if it's not that great. But then we expect in June and beyond to really pick up the sawtooth effect and achieve what we want to do, as we have done in the past. So, when we've talked to you about the sawtooth effect in the past, in fact, it has occurred. So let us re-adjust, get the teams right, get the work practices back together and then we think we'll get the performance we want to see.

Okay. And then, when will we kind of get an update of how the Commission is kind of feeling about how Vogtle is going? Is that — would that be in this VCM or really the next one? Are they going to do any special hearing on it?

Yes. Well, let me answer that a couple of ways. Steve, I know you're really good about this and others on the call are in terms of contacting the Commission directly or looking at all the filings and everything else. So you have heard directly kind of from the Commissioner himself, I would never put words in their mouth. But the other thing that I would just highlight to people is that Tuesday, so just a few days, the company will be testifying. And you'll be able to see the interplay between the company and staff and everybody else. And so we'll get some illumination there.

Okay. And then my last question is just on — just making sure I understand the assumptions for sales. And when you talk about kind of start-up later in the summer and then recovery, is recovery kind of off of this very low level now? Or when you're talking about recovery, what do you mean by that?

Steve, actually, can you hear me all right? We're having some technical difficulties, as Tom and I socially distance.

I hear you well.

Good. We're modeling a bunch of different things, whether it's V, U, W or L. In general, the midline of our sort of $250 million to $400 million estimate is probably something like delayed re-emergence from stay-at-home kind of through mid-summer, maybe even until August and then some recovery through the balance of the year, but certainly not complete. If we look at the different customer classes that we're tracking today, I mean, our industrial segment, which is not the largest contributor to earnings, by the way, is actually performing quite well, but it is varied. Some of the larger segments, pulp and paper, chemical, are doing quite well because of low input costs because of demand on product. Some of the things like precursors to automotive or light still are going to take a little bit longer to rebound. But those industries as we're watching are starting to reopen and automotive production is beginning to restart across Georgia and Alabama, in particular. On the commercial side, we've seen a pretty exaggerated decrease. Some of our bigger customers there are certainly in retail and education, but some of those segments are starting to move back. And so I think the 2% to 5% total that we gave you really represents those different actions in aggregate, but we're looking at it in a pretty detailed way.

And I'll just add to that, too. So everybody, I think, knows that Georgia is one of the states stepping out on re-emerging. Of course, we're doing it in a thoughtful phased process. The other issue that I would put out there is fuel prices are really low. For the quarter, natural gas was $1.88 per million BTU. And I think the amount of natural gas cost borne by customers was around $247 million lower than last year. So cost of electricity, and therefore, consumption of energy is more cost-efficient than it has been before. There's a lot in the mix right now. And also, I'll just say that I've been in contact with my friend, Jay Powell from the Fed. I would complement — and I know there's all kinds of disagreement about this — but I would complement broadly the federal response, whether it's the administration, whether it's Congress, whether it's the Fed, in terms of the timeliness of their response and supporting the economy, especially as compared to, say, 2008, 2009. These guys are on top of it. And I'm sure we can all criticize one step here or there. But I think all the necessary elements are in place to produce something that will minimize hopefully the impact going forward.

Okay. Thank you.

Thank you. Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please proceed.

Hey, Steven. How are you?

Hi, good afternoon. I just wanted to follow up on the status of COVID at the Vogtle work site. And you've taken steps to reduce risk. Is there — we're trying to sort of track the number of cases. Is there a risk of a trajectory of more cases such that you have to sort of adjust work practices at the site further? Or do you feel that the changes you've made have made the impacts to the number of cases that you were looking for?

No. In fact, look, we started very early on before there were any COVID-19 effects, we were planning that there would be. And one of the very first things we did, I remember it was a weekend all of the executive team, was to move to the site, essentially an on-site medical village staffed by nurses and doctors. We have a disease specialist that's been advising the site daily. We have all the PPE we need. We have conservative testing and turnaround and conservative work practices. And in fact, on realization, I kind of — we've debated about talking about this on the call, but I'll throw a little bit of it out there. Our incidence rate compared to the utility industry is about half, maybe 40%, something like that. Our severity of cases is way low. One of the very smart steps that the site did very early on was to remove from the site at least on a voluntary basis with pay, people that would be most likely to be severely impacted. That is elderly or older or those with a pre-existing condition. So if you look at it, one other thing we do that's very conservative that other people aren't doing: if somebody at the site just feels funny, if they don't feel well and want to get tested, we get them tested. Not only that, we take their work associates out that have close contact and we test them. When you look at the amount of testing per person at the site relative to anywhere in the community we serve, it is somewhere we are testing between five and ten times more people than what's being tested elsewhere in the region. So it's amazing stuff. So sometimes in these close contact cases, we will test somebody that is asymptomatic; if they turn up positive, we remove them. And the other telling factor is severity. I think we've only had one or two people be hospitalized or go to a hospital. Otherwise, they're being treated in the clinics on-site and about half of the people that have tested positive have returned to work. I think that's all pretty positive stuff. A couple more things that we're doing. At any work front, we limit the number of people doing close work to three per work site. So sometimes, we exceed that with everybody's approval, but that generally is the practice. We have eliminated close quarters common areas, close quarter lunch areas, the big bussing, and all that stuff. We really have worked hard right away early on to make sure and the principle was that we wanted Plant Vogtle 3 and 4 to be a better environment for the workers there than what they could find elsewhere in their homes or in their communities in the surrounding area. And I think we’ve done that.

That's really helpful color. Thank you very much. And just checking in on the status of just equipment testing on the site, would you mind just giving a high-level update on, I guess, maybe percentage of equipment tested or whatever else is most relevant as we think about just sort of overall status of testing all the equipment on site?

Well, all the major equipment is tested, right? In fact, it was — I mean, right as we entered the call, we got the sign-off from Westinghouse. The open vessel testing was complete. Just as you get your children and teenagers, check your work before you turn it in. That's what we have been doing in the past few days, whatever. And in fact, we just got clearance from Westinghouse. They had verified that we had passed all the tests on OVT. So we were very happy to announce that today. I don't know what else you would want to hear?

Well, I think that makes sense. I think in the past, there was some sort of metric of percentage of equipment that's been inspected. But I can follow-up afterwards.

I'd say all the major equipment is there and has been tested. We'll test it again once it goes into a system, but we're done.

Hey, one other thing, the RCP, right, is all on-site and everybody admires it as they walk by it. It's a spare. We got that from Summer.

Great. That’s all I had. Thank you.

Thank you.

Thank you. Our next question comes from the line of Durgesh Chopra with Evercore ISI. Please proceed.

Thanks for joining us.

Thanks Tom. Thanks for taking my question. Just — I want to take you back to '08, '09. You mentioned you were able to offset a lot of the impact there with cost cuttings. But also, I believe it was Georgia and correct me if I'm wrong, where you were able to amortize some of the regulatory accounts to kind of mitigate the earnings hit there? Is that sort of an opportunity available this time around?

Well, you've got a great memory, and you're correct. That is, in fact, what we did. We took some steps to lessen the burden, but we don't feel the need to take those steps right now. Those are certainly options in the future to approach regulators if we need to. The one thing I think that you can just point to around the system is that I think we've received — in fact, I would just go broadly. Our Public Service Commissions, but also, I would say, FERC and NERC at the national level, folks have really, I think, gone over backwards to accommodate the needs of this unique environment. And I think the issue of being able to set aside as a regulatory asset recovery of disconnect costs and a variety of other things has been another evidence of constructive practice by our states. And at the NERC and FERC level, they've been on these Electricity Subsector Coordinating Council calls, they're doing what they need to do in order to help the industry get through this period. Not by imposing over-regulation, et cetera. I'm very complementary of what are generally very tough regulators taking constructive approaches to help in assisting through this time frame.

Got it. Thanks. And then maybe just shifting gears, can you talk a little bit about the credit metrics and you're really confident in your 2020 EPS numbers, but I'm just kind of curious as to what impact, if any, are you seeing or do you expect to see on your FFO to debt versus the targets? And any color on any dialogue you may have had with the credit rating agencies?

This is Drew. I would say that we've had numerous conversations with the credit rating agencies across a variety of topics and did a very fulsome review of each of those individual business units not four weeks ago. While we're meeting targets, FFO to debt doesn't change much. Our goal is to sort of stay with a buffer relative to what's expected for the ratings categories that we maintain. And generally, as we get through the construction of Vogtle, we are on an improving trajectory, which is a function really of just how the economics work of Vogtle. The other thing that we've been working through is general liquidity, which we think is paramount to operating a well-functioning business. We were fortunate to be good credit in reasonable markets, and we accelerated all of the debt issuance that we needed to do for the balance of the year, at least for ourselves, and are in a position to not have to face those challenges later on. So I think very comfortable with how we're managing liquidity and credit in total.

Yes. And Drew, I'm just going to ask you if you're comfortable saying something here, but our relationship with not only our regulators, but also the rating agencies, etc., is continuous, not discrete. And just recently, you went through a pretty intensive review by the rating agencies. What can you say about their response to that?

Just as you would expect and probably very similar to 2008 and 2009 that they have sectors that they worry about far more than utilities. I think they're focused on whether the constructive and proactive nature of regulators and the behaviors that we've seen insulating us from things like bad debt expense, I think, is a very protective and productive thing. But in general, the rating agencies are still concerned with the same things they were concerned with before. But I think, certainly, our sector is less of a concern than most others.

And I think we got a favorable review from them.

Okay, perfect guys. Really appreciate you taking the time to answer our questions today. Thank you very much.

Yes sir, thank you.

Our next question comes from the line of Sophie Karp with KeyBanc. Please proceed.

Hello Sophie.

Good afternoon. Congrats on a solid quarter, and thank you for squeezing me in here. A lot of the questions have been asked and answered, but maybe if I can just follow-up on a couple of points here. So firstly on Vogtle, you mentioned that you reduced the size of teams to three people, I think you said, and the overall workforce by 20%. And is that based on kind of CDC guidelines or your internal guidelines that you've developed? And when may you go back to larger teams or reduce this because, obviously, it would be fair to say this is causing some productivity declines, right? So is that sort of a new normal duration of the project's in your mind? Or are we going to go back to more normal staffing at some point?

Sophie, that's a great question. So if you recall the CapEx by quarter, we've jumped these curves. We're kind of at the peak of our curve. And assuming that we continue to be productive, the curve actually starts to turn down on Unit 3. Now, it'll ramp up a little bit more on Unit 4 going forward. So, my sense is we're going to evaluate our progress in the months ahead. But it could be that this level of activity is appropriate for where we want to be on Unit 3 and 4. We were on the downturn of activity at Unit 3, just right there. So, dropping the whole site from nine to seven isn't exactly unexpected. It's a little accelerated, which means that we're probably going to push out some hours. But it's not unexpected and we didn't intend it when we refined the schedule in February, but accelerating for those two months gave us essentially a bank of more margin that we're able to use in moving people from 4 to 3 to accommodate the difference in the resizing after this voluntary reduction. So, it's actually not a bad place to be. Let's see what happens in the months ahead.

And then my other question was on bad debt expense. We're pretty early I guess in this as far as the wind cycles go, but is there a point where it might be an issue for the balance sheet that you might want to approach the regulators to maybe cover it before the next rate case cycle which is now some time away? How do you think about it internally? What is the threshold, if any?

Sophie, I'd say a number of things. In general, our gas utilities have riders or trackers for these types of things and so our exposures are probably more isolated than the electric utilities. We've had very constructive regulatory conversations. And in fact, not so much in mechanism, but at least an understanding that bad debt expense would track through regulatory assets that we could recover when we get together next to discuss rates. Your question, I think was around the interim period. And to be honest, bad debt expense is not one of the things that I fear. It's a relatively low percentage of our total revenue. The thing that we're tracking really is sort of the level of late payment of bills. And so we've been monitoring the number of customers in arrears. It has not changed materially over the last month. We typically have about 15% of our customers in arrears in any given time and if we were to have provisions where something like 40% of our customers being in arrears that we would probably have to provision somewhere between $800 million and $1 billion worth of additional capital per quarter. All of that is manageable within the existing liquidity that we have within the business. And so we don't anticipate that there'll be anything more than maybe some temporary impacts to liquidity, but really no long-term impact to bad debt.

And let me add another comment. When you think about the intensive impact of COVID-19, it's occurring during light revenue months for us. It's occurring during April and May, which are not strong months. The Southeast is known for these beautiful long springs and our big revenue months — June through September — are much larger. So when you think about the intense impact is coming during low revenue, and therefore, if we have some recovery, that will get us back to a better spot. Hey, Sophie, one more thing you mentioned, somebody pointed out to me that I didn't cover, you said, do we follow CDC guidelines? In fact, yes, we do. And in fact, I think we're even more conservative than CDC in terms of quarantine and return-to-work protocols. We keep people out 14 days, even if they've been around somebody that's been tested, and we take other conservative steps. One other last thing: we do survey and stay in touch with other megaprojects around the U.S. and their experience is not that different than ours. I think 95% are still progressing similarly.

Great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Michael Weinstein with Credit Suisse. Please proceed.

Hey, Tom. How you doing? On residential sales, it looks like your forecast is about 1% to 3% growth. It is a little bit light as a forecast for up compared to what I've been hearing from other utilities, range of 3% to 4% for residential sales. Is there something about residential sales that you expect to be a little more muted? Anything else?

No, Michael, I think probably what you're noting maybe a difference in time period. We're looking at what the full year impacts might be. We certainly are seeing across all of these classes, commercial, industrial and residential, exaggerated responses month-to-month. What we're trying to show is just that this is what we think the full year impact might be given the point in time we're in the heating and cooling cycle. April is an interesting month in Georgia, people are starting to change over from heating into air conditioning and so demand is quite light. What we expect in May is a fraction of what we expect in June. Drew?

And August and September here are typically the peak months for us.

Where are they manufactured? You're breaking up; did you say where the fuel is manufactured?

South Carolina?

Are there any issues on-site or with the manufacturing process?

Is there any fuel on-site? No.

Got you. Okay. Thank you.

Yes, Michael, thank you. If we missed your question there, please call us after, and we'll be glad to answer it for you. You were just breaking up a lot.

Thank you. Our next question comes from the line of Jeremy Tonet with JPMorgan. Please proceed.

Hello, Jeremy. How are you?

Good. Good afternoon. Thanks for having me. I wanted to come back to Vogtle here a little bit, if I could. And with the lower Vogtle workforce, I was just wondering, what type of working hours per week are you guys achieving now? And what levels would have a concern with regards to the schedule? Or what type of working hour numbers do you guys need to see to hit that monthly completion rate of about 1%?

I think we're on 5/10s, and then we don't do as many weekends as we have. So we backed off a little bit. That gives us a little bit of optionality should we need to work weekends. So we backed off a little bit during this timeframe and less density and everything else. Further, we have shifted more work into the daylight hours as opposed to the night shift. And we have shifted more hours onto Unit 3. So, that's kind of the broad approach there.

That's helpful, and thanks. And just wanted to shift gears I guess to load. Appreciate it might be too early to tell. But it seems like Georgia has recently started to reopen a bit here. With that process started just wondering if you could share anything you're seeing with us in real time. And was that able to inform kind of your load projections that you provided earlier on the call?

Look, we're in contact with our key account customers. I think we always do a pretty good job there. And let the estimate stay where the estimates are. So, you have a little bit of a different question about what's our pulse of the community. I think there is a positive vibe right now, that people are trying to figure out ways to start again the restaurants. They are doing all this takeout. It just — it feels a little better. Drew is in a different part. He lives right in the heart of the city. I live in the suburbs. What's kind of your experience?

Another way to think about this is we have real-time data on actual usage. And then as you described, we have polling of all of our commercial and industrial customers. And I would say that the fact that the governor has opened the state has not changed human behavior materially. But I would say that in general, confidence around coming back as load has improved in the last couple of weeks, at least in Georgia in particular. But these are just early kinds of signs. And we'll have to look at what the actual demand is. We certainly have some categories where we don't expect any immediate improvement. Education is one of our top segments and we don't anticipate people being back in school for this season. Then there are other loads like hospitals, where they have exceeded historical consumption. That's to be expected. So, give us a few more months and we'll be able to give you better clarity.

But Drew, you mentioned you sit on the board for hospitals and your wife is a doctor. Can you give a sense as to how many of the beds are being used because this is kind of this capacity flatten-the-curve concept?

I probably have to stay away from absolute numbers. I'd prefer that some of these institutions report for themselves. I would just say that I am intimate with the functioning of Emory and Grady — some of the major hospitals in our area. I'm incredibly amazed at their ability to ramp to an expected demand. And in general, I think that we're seeing cases in those hospitals that are a little bit lighter than some models projected. But the ability of those hospitals to accommodate a potential crush has been really incredible — very sophisticated institutions in our area.

We have far more capacity than what we're seeing in terms of actual cases right now. So when you think about coming back to work, there's a whole lot of gating issues that we've been working on. One of the big indicators is, have we flattened the curve? Do you have capacity? Yes. The fact is, we have to learn to work with the virus. We have to learn for American commerce to get along, because the only way you can be assured you don't have the virus is to have widespread available vaccines, and we don't have that yet. Until we get there, you won't have complete recovery. So how do you act? How are you able to persist in this environment? I think that's why Governor Kemp was looking at things like available capacity. The next question we will all have as a nation is, do we have a second wave later this fall? We'll see.

That's really helpful. Thank you for taking my question.

You bet. Thank you.

Thank you. Our next question comes from the line of Paul Fremont with Mizuho Securities. Please proceed.

Hello, Paul. Glad to have you with us.

Hey, great to be here. Hope you're all safe and healthy. You had initially planned turnover and testing to occur simultaneous with construction. Is that still the plan? And does COVID-19 complicate this due to the small footprint of the plant?

Turnover and testing and construction have been going hand in glove along the way. We get thorough reports. I know we do thorough reports once a month with everybody at the PSC and the co-owners, and that's going according to pace. Sometimes you speed up testing, sometimes you slow it down letting construction catch up, or you test in other areas of the plant while you focus on construction in a particular area. All that's going as expected. I wouldn't say that's anything other than exactly what we expected. And I think this approach has really served us well. We've talked about that in the past, but fail fast and learn in other areas has been really helpful to us.

And then secondly, can you update us on how many final approvals you've had from the NRC on ITAAC? And are you going to have to wait until construction is fully complete for a lot of the remaining ITAACs to be signed off on? Or how should we think about the time frame for that?

Let me just give you quick numbers. The ITAACs that have been submitted in form have been accepted by the NRC, so every one of those that we've submitted. That really lessens the bow wave that we have. We had originally many ITAACs that needed to be submitted for Unit 3, and we've had a whole lot of those completed. I guess we still have about 270 left before they're certified and we get the clearance to load fuel. That's been going well. I would say ITAACs are progressing and the NRC has staffed up appropriately. The teams charged with approving the ITAACs that are fully complete have done a very timely job of doing that. I personally have worked with our NRC contacts and they are committed to holding up their end of the bargain. I feel good. It's still a big issue, but it's something I feel pretty good about.

I was going to ask for the 270 to be approved — do you essentially have to wait until construction is complete or are you expecting that to happen earlier?

There's a pace along the way. There are some elements of the 270 that are after construction. But ITAACs are going well. We're either ahead of schedule or on pace. I want to give a bouquet to the NRC — they've been responsive and timely.

After implementing the 20% workforce reduction, are you anticipating a significant improvement in productivity at the plant?

Yes. And remember the sawtooth discussion: anytime we staff up or staff down we have to right-size and bring people together and there is a learning curve. We are expecting an improvement. Even with April, it's just a slight down tick from our aggressive schedule, and I think we're still far enough from November. Even during April, we completed 1.25%, target was 2%, and the November schedule called for 1%. So we even made some margin to November even during a challenged month.

And my last question: looking at slide 11 with respect to potential cost reduction relative to the $250 million to $400 million of potential revenue erosion, where would you see the ability to offset that with O&M towards the lower end, the middle, the high end? How should we think about that?

We're going to put plans in place that could help us across the range. There are certainly costs that we will categorize where you reduce the absolute run expense, travel and entertainment in particular is a perfect example. Workforce of nearly 30,000 people — very few people were traveling for a number of months. We don't expect that creates a backlog of travel that will then come back into our cost rating. There will be things for the far end of the spectrum where we will be delaying expenses into future periods. We're just going through an effort to identify both categories and across this entire spectrum of potential revenue declines how we might function in either outcome.

We're not, as a principle, refilling open jobs without CEO approval, which really freezes them, and has the effect of a hiring freeze.

Are there examples from past years where you've gone through cost reduction and any numbers you can share based on past experience?

In 2008 and 2009, the number was probably a little bit towards the lower end of this range, but company was a bit smaller then. Our total O&M is in the $5-plus billion range, maybe a little smaller that is addressable, but I think it gives us plenty of room to be responsible around this range.

Great. Thank you.

Yes, sir. Thank you.

Thank you. Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed.

Hey, Michael. How are you?

I am well Tom, how are you? Glad to hear everybody in the Southern Company family is doing as well as possible. Thank you for taking the question. I actually want to ask you about the jurisdiction that people don't ask you about, that may be one of the best ones people don't think about enough. Can you talk about Alabama? And can you talk about both where things stand with the approval of both the gas plants and the solar both the PPAs and ownership that you all filed at the PSC? Also, I thought there was a rate docket there this year as well or undergoing in the winter and into the spring. Can you just give us an update on that? And then finally, how different are Alabama demand trends relative to others?

I would say in general that process is on track in Alabama for all of that stuff. Everything is going as we thought it would there.

On customer mix, just like the entirety of our jurisdictions, it tends to move toward more industrial as you move west generally.

In Mississippi, 25% of Mississippi sales are wholesale, and those wholesale sales are largely residential. So you get a bit of a different mix in Mississippi, but Alabama and Georgia are pretty similar.

Okay. And can you remind us in Alabama what the rate request was? And also what the timeline to get approval for the gas plant, both acquisition and development?

I think we were looking towards June, early summer for that process to occur.

Got it. Thank you, Tom. Much appreciated.

Thank you my friend.

Thank you. Our next question comes from the line of Julien Dumoulin-Smith with Bank of America. Please proceed.

Hey, Julien. How are you doing?

Hey, how are you guys. Thanks very much. I just wanted to follow-up on the O&M front. When you think about the cost savings effort just to quantify a little bit more, basically, you're saying that you can offset anything in that range or how do you think about the magnitude of cost savings that you're contemplating today? You're looking at $250 million to $400 million — is that the equivalent O&M amount that you're looking at in your planning here?

Yes. The simple way to think about it is that we're going to put plans in place or work through plans that could help us under either end of this range. What we actually have to execute against is going to be determined by how quickly the economies respond in our service territories.

We trimmed down the range a bit — earlier we said $250 million to $350 million — we stretched it to $250 million to $400 million out of conservatism for a more prolonged effect.

I don't want to give the impression this is a limitless pool. There are certainly limitations and we're just going to have to see how the demand response plays out over time. For conversion to earnings, we're generally about $10 million per penny; you can divide this by 10 and get some sense of the range of impact in total on a gross revenue basis pre-tax.

Got it. When you talk about the sawtooth 20% reduction here in workforce, how are you thinking about making that up on the project? And you also talked about delaying Unit 4 this year. Are you thinking that you're going to ramp back up labor later in the schedule at this point? How do you make up for that 20% workforce reduction cumulatively?

If you imagine a curve that showed 9,000 people on site as we wind down Unit 3 construction heading into hot functional tests, the wind down of people on-site for Unit 3 occurs. So the curve actually goes down. What we've done is pushed the curve a little bit to the right. All we've done is tried to maintain that level. I don't think you're going to see another big peak here. We were already at the peak. And now that peak starts to wind down. That's why we feel comfortable with the movement from 9,000 to 7,000 on-site, drawing some off of Unit 4 which pushes Unit 4 back to its original schedule and still maintaining our ability to hit the aggressive site plan for Unit 3. All we did was shift the curve a little bit, and we funded that curve with Unit 4.

Under what scenarios would you consider stopping construction around COVID? It sounds like you guys have a lot of mitigating factors already implemented. How do you think about what scenario might look like and when you might trigger that?

There's a hypothetical in there. I just don't think that's likely. America has to learn to live with the virus. Our experience so far has been much less than what you've seen in many areas; our experience on site likewise has been less severe, largely because of the smart actions the site has taken, for example removing at-risk personnel and paying them well before we saw effects. People are now coming back to work. If you do a seven-day rolling average, it looks as if incidence levels are decreasing. So look, there's a hypothetical, but I really think the job at hand is continue the good work on site, make that an attractive place for people to work, and I think the labor unions and the building trades have recognized our approach. I just don't see a stop in construction right now, but we'll see as circumstances evolve.

Excellent. All right. Thank you for the time. All the best.

Thank you, Julien. Appreciate it.

Thank you. Our next question comes from the line of Andrew Weisel with Scotia Howard Weil. Please proceed.

Hello, Andrew. Thanks for joining us.

Hey, everyone. In the interest of time, I'll really stick to one question here on Page 11. I'm a little surprised — maybe I missed this, I apologize if I did — but you're forecasting a bigger decline for commercial volumes than industrial. Most other utilities are talking about it the other way. I know you mentioned your mix is roughly a third, a third, a third. So can you explain why you're expecting a deeper hit to commercial than industrial?

Look, if that's the big hit, I think your ability to come back is much better. It will come back quicker. Your ability to shut down a plant and then get it back is harder than restarting a restaurant. In fact, I was on CNBC this morning, and right after me was the CEO of IMAX. He says our ability to turn theaters back on is almost instantaneous. So that is an assessment of our key accounts and our marketing teams across the system. Our industrial mix, the folks that we serve, have been having a relatively good quarter. Many industrials in our region are dependent on natural gas as a feedstock, particularly in chemicals. With natural gas being low, those guys are producing product at attractive levels. We saw this again in 2008 and 2009. And essentially, Alabama has been particularly proactive in putting in place rate plans that preserve industrial load, where across the United States other places didn't. For all those reasons, we think industrial is more resilient than commercial. The good news is commercial will recover pretty quickly, in my opinion.

Okay. Thank you.

You bet.

Thank you. Our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed.

Thanks, Tom, happy to hear you. How are you doing? It sounds you guys are doing well. I wanted to touch base on your economic forecast. It sounds like you guys are quite optimistic that once the stay-at-home and social distancing stuff is resolved, people coming back and it will be business as usual. Is that the case? What is your economic forecast given your growth rate? Are you still expecting 1% sales growth after this year?

The $250 million to $400 million estimate assumes that there's more of a through-the-year impact. I don't want to portray too much optimism. We certainly favor a U-shaped recovery and feel a bit better than a few weeks ago. Our projection for a 2% to 5% decline in total retail sales is conservative. Long-term, the Southeast benefits from in-migration and a good place to do business, so we think our long-term fundamentals are solid. The amount of time it takes to get back to normal is uncertain. We remain committed to the 4% to 6% EPS growth rate outlook over the long term. The dominant issue for us is getting Vogtle Units 3 and 4 completed. Once we clear those to service, the earnings trajectory improves materially.

Okay. On Vogtle, it looks like you've been testing and the rate of positives has been fairly consistent. Is there any thought to antibody testing or thinking about herd immunity, or are you relying on testing when somebody feels unwell?

We're working with the best tests available at the time. Antibody tests are interesting and we're discussing them at the national level. We have had good access to testing and we can test many people, but testing everybody once doesn't solve the problem because you might have to test repeatedly. Antibody testing is not broadly available yet. Until we get a vaccine, we're going to have to live with this environment and use conservative measures.

On the sales numbers, they include leap year? Are they adjusted out for leap year for the quarter?

I think they are not adjusted for leap year.

Okay. That's it for me. I really appreciate it. Thanks so much.

Thank you. Appreciate you joining us.

Thank you. Our next question comes from the line of Charles Fishman with Morningstar. Please proceed.

Hi, Charles.

Hey, thank you. One question. You have a $40 billion five-year CapEx program. The bulk of it is not Vogtle. You had a statement, no expected supply chain problems or disruptions. What could cause concern within the supply chain? Is there something that's going to be more expensive in that CapEx? Is there something maybe you've pushed out a year or two that you'll still get done within the five-year plan? Any additional color on that would be appreciated.

We're large customers with long-standing relationships and are considered high-priority customers by many suppliers. When I say we don't see problems in the long run, that doesn't mean people aren't working hard to understand perturbations and to resource them. We have at least a six-month forward window where we're confident of no problems. Our CapEx budget is largely tied to transmission and distribution resilience, future generation including renewables, and environmental matters particularly ash pond remediation. We have good visibility into the availability of equipment required to support that program. Labor is another component and our relationships with labor and building trades are strong. The Department of Homeland Security and CISA have also flagged electricity as essential infrastructure, and that helps ensure supply chain prioritization. In short, we don't see a major supply chain risk for our program at this point.

I'd say labor is a large component of our total CapEx plan. Environmental remediation at ash ponds isn't really reliant on new technology in general. We've got enough material and contractors for a pretty decent work front for a good period of time and expect the supply chain to replenish as needed.

Okay. Tom, thank you for the extra long call in extraordinary times. That was it.

Yes. We appreciate your attention.

Thank you. Our last question comes from the line of Ashar Khan with Verition. Please proceed.

Hello, Ashar. How are you? Always glad to have you with us.

Great, Tom. Doing — the progress is exceptional and really very well you guys are doing. I didn't want to ask the question, but I thought because of historical patterns I have seen, usually you have earned around $0.80 for the last four years in the second quarter except for one year 2017, where we had like $0.05 or $0.06 of dilution, which hurt that quarter. Even then we earned 73. So can you just ascribe to me why the pattern of earnings is going to go from the average $0.80 to like $0.55 or $0.65 in the second quarter? What is making it an abnormal second quarter versus the prior trajectory of how the earnings have come up?

Ashar, let me say I went deeper preparing for this call. Over the last eight years, our low was $0.66. We had several years in the high 60s and low 70s, and only the last two years were $0.80. All we're doing is taking a conservative estimate for what the second quarter COVID-19 impact might be. There's always a degree of conservatism in interim estimates. I think Drew has done a good job with the $0.55 adjusted EPS for the quarter. I wouldn't read too much into the sequential change; it's prudence given uncertainty.

Ashar, it is fair to say that this quarter will hopefully be the largest COVID-19 impact of any quarter that we'll experience. That's the hope and that's the expectation. If we're going to reduce our expense structure, that's generally through adjusting headcount, which is part of our plan and is something that will reduce expenses over the course of the year and not be isolated to the second quarter. We're still committed to our financial objectives for the year. I wouldn't get overly worried about the second quarter; we're still committed for the year.

Okay. Thank you.

And we had a good first quarter. Excellent quarter. Good start.

That will conclude today's question-and-answer session. Are there any closing remarks?

Again, I'd just say, thank you to all the folks that are working hard on behalf of customers every day. I think we're living our core values. I'm impressed that with 15,000 or 17,000 people working from home, we're getting the job done. So thank you very much to all the work teams that are working hard to have such a great outcome for us.

From my perspective, working at a national level, whether it's thinking about Homeland Security with Chris Krebs and his team, Department of Energy, Secretary Dan Brouillette and all of his team, they are doing a terrific job. The industry is responding exceedingly well. You should know that the industry in this case is a union of the investor-owned utilities and the cooperatives and the municipals. We are all working together to solve the problems as they arise. The favorite Gretzky saying is 'skate to where the puck will be.' I think this industry is way beyond reacting to the present and really into thinking about the future. We're very mindful that hurricane and storm season is ahead of us and being able to demonstrate as we have for decades effective mutual response to the problems that will arise this year. I think the industry is doing a terrific job, so kudos to all of my brothers and sisters out there. Finally, for Southern, what a great start to the year; that's given us some tailwind I think to address some of these things. There is a lot of uncertainty ahead. I'm very encouraged with the team at Vogtle. When you look at the data, I think they're managing these unexpected conditions in an exceedingly prudent manner. The rest of the system is going great with their ability to respond to the storms and still serve customers well with coronavirus protocols in place. I'm very encouraged about our ability to deal with whatever comes our way for the rest of the year. That's why we remain committed. I want to thank you all. I know, especially those of you in the Northeast, you know I'm from New Jersey; I have relatives up there. I know you guys are dealing with some very tough times. My thoughts and prayers go out to you all and I think working together, we're going to get through this thing. Thanks everybody for being with us today. I know it's an extra long call, but I hope we gave enough color around not only Southern's situation, but the national situation to give everybody confidence in the next steps forward. Thanks, everybody. Talk to you soon. Operator, that's the conclusion of the call.

Ladies and gentlemen, this concludes the Southern Company First Quarter 2020 Earnings Call. You may now disconnect.