Earnings Call Transcript
SOUTHERN CO (SO)
Earnings Call Transcript - SO Q2 2023
Operator, Operator
Good afternoon. My name is Tommy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company Second quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded, Thursday, August 3rd, 2023. I would now like to turn the call over to Mr. Scott Gammill, Vice President, Investor Relations and Treasurer. Please, go ahead, sir.
Scott Gammill, Vice President, Investor Relations and Treasurer
Thank you, Tommy. Good afternoon and welcome to Southern Company's second quarter 2023 earnings call. Joining me today are Chris Womack, President and Chief Executive Officer of Southern Company, and Dan Tucker, Chief Financial Officer. Let me remind you, we’ll be making forward-looking statements today in addition to providing historical information. Various important factors could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K, Form 10-Q, 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 Chris Womack.
Chris Womack, President and CEO
Thank you, Scott, and good afternoon. Thank you for joining us for what is such a pivotal and exciting time for our company. As many of you know, on Monday, we announced that Plant Vogtle Unit 3 successfully achieved commercial operation. While work remains to bring Unit 4 online, this incredible milestone is something to be celebrated. This decade-plus journey, which involved development in the global supply chain, managing through a global pandemic, tens of thousands of American craft workers and engineers, and millions of labor hours, combined with a group of committed co-owners and regulators that had the courage to support new nuclear power as an option when others didn't, proves that we can accomplish monumental things when we share a common vision. Vogtle Unit 3 is now serving Georgia customers with over 1,100 megawatts of 24-hour, seven-day-a-week carbon-free electricity. Turning now to Unit 4, since our last call, the project team continues to make substantial progress, as highlighted by the completion of hot functional testing, receipt of all 157 fuel assemblies, the completion of all iTAC, and most recently, the receipt of the 103G finding from the Nuclear Regulatory Commission, which signifies that acceptance criteria for Unit 4 have been met. The project team's current focus is on final testing and system turnover to operations, which will allow fuel load for Unit 4 when complete. Recall, as we contemplated in the VCM 17 order, Georgia Power can file its prudence request with the Public Service Commission following fuel load on Unit 4. Following fuel load, the project team will conduct final preparations and testing of systems primarily associated with the electrical power production side of the plant and achieve the pristine conditions in the nuclear island necessary for startup activities and initial criticality. Importantly, the project capital cost forecast is unchanged since last quarter, and we continue to project Unit 4 will be placed in service between late fourth quarter 2023 and the end of the first quarter 2024. The successful completion of this important project is critical for Georgia's, and our nation's, energy future. We look forward to these units providing reliable, carbon-free energy to customers for decades to come. Dan, I'll now turn the call over to you for a financial update.
Dan Tucker, Chief Financial Officer
Thanks, Chris, and good afternoon everyone. For the second quarter of 2023, our adjusted earnings were $0.79 per share, $0.04 higher than our estimate and $0.28 lower than last year. The primary drivers of our performance compared to last year were milder than normal weather conditions, higher depreciation and amortization, interest expense, and changes in rates and pricing, somewhat offset by lower income taxes and O&M expenses. A detailed reconciliation of our reported and adjusted results as compared to 2022 is included in today's release and earnings package. Weather in our electric service territories during the first half of 2023 has been the mildest on record, with the fewest aggregate degree days in the 129-year history of climate data reported by the National Oceanic and Atmospheric Administration, more commonly known as NOAA. The negative $0.16 per share EPS impact relative to our weather-normal EPS guidance range is our largest-ever negative weather-driven variance for the first six months of a year, which is a significant headwind for the full year. While 2022 was a year in which we were able to fix the roof while the sun was shining and position the company well coming into 2023, we have been and will remain keenly focused on cost management, along with our constant focus on safety, reliability, and customer satisfaction in the second half of this year. Our adjusted earnings estimate for the third quarter of 2023 is $1.30 per share. Turning now to retail sales in the economy. Year-to-date 2023, weather-normal retail sales were in line with sales levels for the first half of 2022. We've seen positive residential and commercial growth and strong commercial usage offset by lower industrial sales. Year-to-date, we've added nearly 24,000 electric customers and 13,000 natural gas customers, trends which continue to outpace pre-pandemic levels. Chris, I'll now turn the call back over to you.
Chris Womack, President and CEO
Thank you, Dan. In closing, I'd like to take a moment to acknowledge that Southern Company was recently awarded the number nine overall spot on Forbes' ranking of America's best employers for women, the highest ranking within our industry. We are honored to be selected to this list once again. Workforce and leadership diversity is a tenet of ours and ensures we have the variety of experiences and perspectives to better serve our customers. We will continue to emphasize a culture where all employees feel valued, respected, and able to accomplish their professional goals. Thank you for joining us this afternoon and for your interest in Southern Company. Operator, we are now ready to take questions.
Operator, Operator
Thank you very much. And we'll proceed with our first question on the line from Shahriar Pourreza, Guggenheim Partners. Please go ahead.
Chris Womack, President and CEO
Shahriar, good afternoon.
Shahriar Pourreza, Analyst
Good morning. Chris, that was the world record for the fastest prepared remarks, so congrats on that one.
Chris Womack, President and CEO
Thanks. Always appreciate your comments and your analysis and your perspective.
Shahriar Pourreza, Analyst
Just starting on Georgia's economic backdrop. Obviously, you guys have seen a step change in the pace that major industrial customers have been announcing new capacity needs. How many new gigawatts are you seeing now in Georgia versus the prior update with the state? What is the prior IRP embed? How should we think about any updates to capacity needs, including the viability of the remaining coal assets as you're thinking about this incremental demand? So could we see a drastically different IRP being filed? Thanks.
Chris Womack, President and CEO
Shar, we're working through that analysis now. I think we have said to you before, and we've commented about all the wonderful economic development activity that we've seen across the state of Georgia over the past couple of years. Some 250-plus projects, $20-plus billion of investment, and some 60,000 jobs that I know the governor has reported. So, I think we've talked about the impressive activity that we've seen. We've not turned that into the capacity needs at this time. That's some work that we're doing, and I'm sure forthcoming, we'll work with the commission on what all that means and then figure out what it means for us in terms of capacity needs going forward. But I think it's a little bit premature.
Dan Tucker, Chief Financial Officer
Look, again, we're kind of going through the analysis, but it's fair to say what we've seen from an economic development announcement perspective in the past is hundreds of megawatts at a maximum in a given year. Now, we're having instances where it's thousands potentially in terms of the announcements. Just the pace has accelerated. You mentioned industrial, and there's certainly a lot of large industrials involved with that, particularly around the electric transportation sector. But it's also data centers. It's a story that's playing out in a lot of places. Just as an example for ours. I mean, as we sit here today, data centers are roughly 2.5% of our overall electric load. Five years from now, that will be well into the double digits in terms of our percentage load. That's the pace of growth we're seeing.
Chris Womack, President and CEO
We're very excited about it. I think it's a real positive contribution and factor that we're excited about here in the state.
Shahriar Pourreza, Analyst
Do you have a sense, Chris, on when you and Cam and Dan and the team could update us around that potential opportunity? I know it's really early in the process, but we're obviously seeing the amount of customers that are moving to Texas, and it's very material. So, I'm just kind of curious about the time?
Chris Womack, President and CEO
Yes, sure. I think it's a little bit premature. But as soon as we get to that point, and we figure out and have a conversation with the commission, I'm sure we'll share that with you and the industry.
Shahriar Pourreza, Analyst
Okay, perfect. And then lastly, Chris, we're obviously approaching the prudency case once we see Unit 4 fuel load. Anything you can provide and how we should be thinking about a potential settlement, or should we be thinking about a rate case? And whether the potential for like a special election could impact the process at all, especially if fuel load takes long to the plan?
Chris Womack, President and CEO
Yes, Shar, I think there are a couple of questions you embedded there together. First, around prudence, we have to get the fuel load. Once we get the fuel load, we'll figure out what happens. Having transparency in the process is very important. But right now, once we get to fuel load, then we'll figure that out. We'll work with the commission and the staff on that process. I think the reference you made to the makeup of the commission; the sense is that we'll get through prudence with the current commission. We have no idea what will happen in the Rose case, so we're still waiting for that order for that decision by the courts. But there's nothing more I can say about that decision at this time.
Shahriar Pourreza, Analyst
Okay, perfect. Thank you, Chris and Dan. Very helpful. I appreciate it and congrats.
Chris Womack, President and CEO
Thank you.
Operator, Operator
And we'll get to our next question on the line, it is from Carly Davenport with Goldman Sachs. Please go ahead.
Chris Womack, President and CEO
Carly, how are you?
Carly Davenport, Analyst
Doing well. Thanks so much for taking the questions today. I appreciate it. Maybe just starting in terms of what we saw during the quarter for weather-normalized demand; a little bit weaker on the industrial side, but commercial still looks quite strong. Can you talk about how things are evolving relative to your forecast and kind of how you could see that evolving as we continue to move through the year?
Dan Tucker, Chief Financial Officer
Yes, absolutely, Carly. And we saw this earlier this year as well. From an industrial perspective, we're seeing two different dynamics play out that are negatively impacting growth. One is the housing sector. So, when it comes to things like lumber, stone, clay, glass to a degree textiles, particularly where it involves carpet, just given the broader trends in the housing industry, we're seeing that impact some of our usage in the short term. The other thing is chemicals from an industrial perspective. We've had one particular facility in Alabama that has slowed pretty significantly. Again, some of that was anticipated very early in the year, and so it's just playing out as we anticipated, just wasn't anticipated when we put our forecast together right before the end of the year. What we're really encouraged by what we're seeing on the commercial and residential side. I spoke to the customer growth that we're seeing from a residential perspective; we've seen sustained levels well above what we were seeing pre-pandemic. From a commercial perspective, just a lot of different stories playing out in that regard. Some of it is economic development; some of it is this data center dynamic that I mentioned. A lot of it is just commercial naturally following the residential growth. As it pertains to how it's impacting our results, what's important to remember is the revenue contribution of these two classes on a relative basis. A 1% change in industrial sales is only about $20 million of impact here, whereas a 1% change in residential and commercial is more like $40 million to $50 million. So, in terms of a net implication for us, we're getting the benefit of the residential commercial that more than offsets what we're seeing on industrial.
Carly Davenport, Analyst
Got it. That's super helpful. Thank you. And then maybe just on the financing front in the context of the current rate environment. Just you've got some financing still outstanding for the rest of this year. How are you thinking about execution of the plan that you have as we move through 2023?
Dan Tucker, Chief Financial Officer
Yes, Carly. Look, we're always going to keep our options open; the flexibility. You’ve seen us do the convertible debt instrument early this year. We typically lean on an ongoing basis towards just senior unsecured stuff at the parent. A lot of different instruments we've used across the utility franchises. I wouldn't characterize anything in our plans as out of the ordinary. We're going to be monitoring the market and making sure we're being thoughtful about, as we always are, maturities about the mix between fixed and variable and like everyone is doing, monitoring the rates as actively as we can to make sure we're getting to the market when it makes sense.
Carly Davenport, Analyst
Appreciate the color. Thank you.
Dan Tucker, Chief Financial Officer
You bet, Carly. Thank you.
Operator, Operator
And we'll get to our next question on the line. It is from Julien Dumoulin-Smith, Bank of America. Go right ahead.
Chris Womack, President and CEO
Julien, how are you doing?
Julien Dumoulin-Smith, Analyst
Thanks for the time. Great. Thanks so much. Really appreciate it. Hey look, just coming back to the other subject here on procurement and renewables. I know we talked about this last quarter here. Curious to hear your latest thoughts, both on the utility side and ownership; I think that had always been kind of back half of this year. How is that looking on that front in Georgia? And then separately, I think, Dan, last time we connected here, you were talking about the Southern Power effort looking like it was a tad more competitive in this environment in terms of your ability to actually win and accrue projects from that side of the house. Do you want to talk about some of the progress and maybe the evolution just with the rate environment where it is?
Chris Womack, President and CEO
Yes, Julien, let me start with the renewables front. As you know, in the 22 IRP, Georgia had another 2,100 megawatts of renewables approved during that proceeding. The first IRP will begin later this year, targeting some 1,300 megawatts of renewable resources with operation dates between 2026 and 2027. I think you may have also seen Alabama Power guidance renewable generation certification modified some 2,400 megawatts over a six-year period. So I think that will also be later this year. So, we're proceeding and we're looking forward to opportunities for us to own some renewables. Clearly, we'll take advantage of the normalization of tax treatment between PTCs and ITCs and pursuing it from a best cost perspective. We think we've got support from our commissions for us to own more renewables. So, we're looking forward to those processes as they proceed later this year.
Dan Tucker, Chief Financial Officer
Well, I think the other question was around Southern Power, and yes, Julien, the same continues to hold true. The radar screen of active, viable opportunities for Southern Power is as strong as it's ever been. We fully expect to be able to continue to deploy capital in the right way there. We'll keep the same discipline we've always had in terms of the hurdles we look for, the risk profile, long-term contracts, creditworthy counterparty, but I think my short message there on Southern Power would just be stay tuned. There are good things happening.
Chris Womack, President and CEO
So, bottom line, Julien, I think we're very optimistic on the regulated side of what the future holds for renewables, and we'll see how that plays out—begin to play out later this year.
Julien Dumoulin-Smith, Analyst
Got it. Excellent. And then just as you think about the generation needs that the prior questioners have been really kind of poking at here, aligned with, as you alluded to a second ago, the added ability to own some of this renewable generation through utility tax credit optimization, if you will. Can you talk about that opportunity coming together and maybe specifically the timeline that you could see that starting to play itself out? I know we just alluded to the prior IRP cycle, but getting the CapEx proposals, RFPs, and ultimately just seeing that load forecast updated?
Chris Womack, President and CEO
Yes, Julien, once again, I think it's a little premature in that regard. Clearly, as I spoke to earlier about the renewable process and the RFPs, we see that forthcoming later this year. We've got some more work to do as we analyze the implications of the second night development activity and what is meaningful for loads. So we simply right now need to let the RFP process play out over the next few months and next few years. But we'll keep you updated as we move through the process.
Dan Tucker, Chief Financial Officer
Yes. As we've said before, consistent with what Chris just said, this will come together from a plan and capital deployment perspective in the latter part of our forecast horizon. So it was not a 2023 thing in terms of capital deployment; it might not be a meaningful 2024 thing either—but beyond that is where the real opportunity exists. The other thing that's coming together to help drive this, and I think you mentioned the economic development aspect, is that all these customers choosing to locate in our service territories are increasingly demanding to be served with renewable generation, and that's just helping support everything we're trying to do.
Julien Dumoulin-Smith, Analyst
I hear you. Wish you guys best luck, and I hope to see you guys soon. All right. Take care.
Chris Womack, President and CEO
All right, Julien.
Operator, Operator
Thank you very much. We'll get to our next question on the line from Jeremy Tonet with JPMorgan. Go right ahead.
Chris Womack, President and CEO
Hey, Jeremy.
Jeremy Tonet, Analyst
Hi, good afternoon. Just want to see, I guess, with the start of Vogtle here, some of the issues at the finish line, just wondering what learnings you take away from that? And do you see the same type of issues materializing for Unit 4 or were there things here that can kind of head off any issues like that?
Chris Womack, President and CEO
Jeremy, one of the things we've commented for— we set a prior for a few years now that there would be lessons learned as we transfer over from Unit 3 to Unit 4. Let me just give you some examples of how that is playing out. On Unit 3, hot functional testing took 94 days; on Unit 4, it took 88 days. It moved forward from 94 and took 42 days. Hot functional testing to complete to 103G was 371 days on Unit 3, 88 days on Unit 4. From coal hydro to hot functional test start was 191 days on Unit 3 to 103 days on Unit 4. I think you're seeing clear examples of how lessons are being learned from Unit 3 to Unit 4. And that work—those lessons learned will continue, I think, to show themselves as we move through Unit 4.
Jeremy Tonet, Analyst
Got it. That's helpful. Thanks. And just kind of pivoting here. I think you saw that the D.C. court overruled its approval of the Southeast Energy Exchange Market. Just what do you make of this year? And what's the path forward?
Chris Womack, President and CEO
Yes. I mean, it remanded it back to FERC to clarify a couple of issues around the power pool, and there are some questions about who could participate in that as well. So I think they're simply remanded back for clarification of a couple of issues, but nothing major there. I mean, the energy exchange continues to operate and perform very well. Everybody is very pleased with the results we've seen. So, it's going to be remanded back to FERC, like I said, with a couple of issues that they'll clarify going forward.
Jeremy Tonet, Analyst
Got it. That's helpful. Thanks. And just last one, if I could. What are you expecting on hydrogen reg from Treasury? And what do you think Southern Power's potential to participate could be with Vogtle and the potential for green hydrogen?
Chris Womack, President and CEO
Let me say something quickly about hydrogen, and I'll let Dan touch on any rules from Treasury. We're participating in a number of processes DOE has with hydrogen hub, so we're excited about that. As you may recall, we did a 20% blend at our Plant McDonough Gas site. We're excited about all the technology activity and considerations that are going on around hydrogen. We look forward to seeing if we can develop this market and get the pricing right, get the transportation of the product right, and then find off-takers. So, we're thrilled by the possibility of how Vogtle can continue to serve customers in Georgia. There are a lot of aspects of hydrogen that we get really excited about. Clearly, there's a lot of work that we've got to work through to get to that point to make it commercially viable.
Dan Tucker, Chief Financial Officer
Yes. And Jeremy, in terms of the Treasury rules, certainly, like most in the industry, I think for us, it makes sense that those are as broad as possible going in to help kind of drive the deployment of the technology. Otherwise, it just may be cost-prohibitive for a lot of people to get it out there. Whether that's a permanent broadness or a temporary broadness that transitions into something more specific, I think that's going to be in the hands of the Treasury Group. In terms of Southern Power's opportunity to play there, certainly, Southern Power's wheelhouse is providing utility-scale renewable generation to counterparties. To the extent that we find opportunities in this space to serve an electrolyzer or another entity with a long-term contract, and it's a creditworthy counterparty, and it meets all of the same criteria, it certainly expands our universe of opportunities.
Jeremy Tonet, Analyst
Got it. That's helpful. I leave it there. Thanks.
Dan Tucker, Chief Financial Officer
Thank you.
Operator, Operator
And we'll get to our next question on the line. It is from David Arcaro with Morgan Stanley. Go ahead.
Chris Womack, President and CEO
Hey, Dave.
Dan Tucker, Chief Financial Officer
How are you, David?
David Arcaro, Analyst
Hey, good. Thanks for taking my questions. I was wondering if you might be able to touch a little bit on Forum Energy. You had an agreement reached with Georgia Power this quarter. I was wondering how you're thinking long-duration energy storage might play a role in your system over time?
Chris Womack, President and CEO
Once again, we're excited about the relationship that we've established with Forum. We have utilized the kind of 4- to 6-hour batteries we think a 100-megawatt—100-hour loan duration storage battery on 15 megawatts has got to be a part of the mix, and it's got to be a part of the system and the grid going forward. So, we're excited about what Forum is doing. We were at their groundbreaking ribbon cutting up in West Virginia a month or so ago. We're looking forward to their development as we go forward. We think this has got to be a part of the technology mix as we go forward, and we're hoping they're going to be successful. As you know, we pay a lot of attention to research and development. We think as we look at a lot of solutions, whether it's energy storage or just making sure we maintain a reliable and resilient grid, technology advancement is very critical. So, we're excited about the work that Forum is doing, and we're glad to partner with them.
David Arcaro, Analyst
Great. That makes sense. And then secondly, obviously, a big weather headwind that you're working through. Could you touch on the cost control—just your confidence level in being able to manage and find flex in your O&M budget for this year? Where are the key areas that you're looking at in terms of offsetting the headwind so far?
Chris Womack, President and CEO
Yes. I think—and Dan said it in the conversation earlier that we'll remain keenly focused on cost management. We've got to correspond with that with a similar focus on cost management. There are a number of efforts going on across the company to make sure that we are executing around cost management controls. Right now, we feel good about where we are, but we know we've got a lot more work to do as we go forward through the rest of the year.
David Arcaro, Analyst
Okay. Understood. Congratulations on Vogtle Unit 3, and thanks again. I appreciate it.
Chris Womack, President and CEO
Thank you very much.
Operator, Operator
Thank you. We'll get our next question on the line. It is from Durgesh Chopra with Evercore ISI. Go ahead.
Durgesh Chopra, Analyst
Hey, good afternoon guys. 7 minutes and 58 seconds of prepared remarks. I'll keep it real brief, hopefully. Just following up on David's question so this quarter, we had $0.04 of unfavorable weather versus normal, but you actually delivered $0.04 higher than your estimates. Is that all just cost cuts, or are there other things that we should think about onetime or other adjustments?
Dan Tucker, Chief Financial Officer
Yeah. It's primarily cost reductions, Durgesh. I mean, there are always some little puts and takes here and there that are a little different from our forecast. Overall, it's just the fruit of our labor. Going back to Dave's original question in terms of where, frankly, it would be doing a disservice to highlight any particular area of the business where we're doing that because we're doing it everywhere. This is a significant lift, and we're doing everything we need to do and pulling out all the stops to deliver.
Durgesh Chopra, Analyst
Okay, solid. And then just maybe if you can—otherwise, I'll just follow up with Scott. Just any initial takes on July weather?
Dan Tucker, Chief Financial Officer
It hasn't looked like the first half.
Operator, Operator
Thank you very much. We’ll get to our next question on the line. It’s from Nick Campanella from Barclays. Go ahead.
Nick Campanella, Analyst
Hi, everyone. Thanks for taking my question. I hope you're doing well, and congrats on the Unit 3 news.
Chris Womack, President and CEO
Thanks, Nick.
Nick Campanella, Analyst
Yes, absolutely. So just looking forward to Unit 4 soon and then knowing that we're getting closer to that $700 million uplift that you detailed in slides here on the CFO. Dan, maybe you can just remind us your preferred use of those cash flows as you roll forward your plan in the fourth quarter. I know we talked about improving the balance sheet in the past, but I'm also cognizant you're talking about a lot of different CapEx opportunities in your region?
Dan Tucker, Chief Financial Officer
Yeah. Nick, and thanks for that question. It really is kind of an all of the above strategy, if you will, in terms of the opportunity to use this cash. The three things that we're primarily focused on— you said one, which is to fund the capital plan. So we'll be positioned as we had been historically kind of pre-pandemic ROEs and heavy construction on Vogtle 3 and 4, where our operating cash flow represents over three times the size of our common dividend. That leaves an awful lot of cash flow to deploy against this capital plan that we expect to continue to grow. That's thing one, the number one priority of the things we're focused on. You also mentioned improving credit quality. What this does is provide an uplift to our credit metrics such that we're more in the 17, 17-plus range for FFO to debt. The opportunity there is to not raise at these levels well above our thresholds and then use that as some sort of currency to do things; that’s the opportunity to just once again get back to being a premium credit utility and maintaining that position for the foreseeable future. So that's thing two, and then the third thing that we've talked a lot about is the opportunity that we'll have as our payout ratio gets sustainably at or maybe a little below 70%, so called that maybe 2024, but more likely 2025, an opportunity to go to our Board and for Chris and me to make a recommendation to increase the rate of dividend growth to be more aligned with our earnings growth. So, it's again, all of the above, but really important things that this enables us to do.
Nick Campanella, Analyst
All right. Thanks for that. That’s it from me today. Appreciate it.
Chris Womack, President and CEO
Thanks, Nick.
Operator, Operator
And we'll get to our next question on the line from Angie Storozynski with Seaport. Go ahead.
Chris Womack, President and CEO
Hi, Angie. Angie, how are you?
Angie Storozynski, Analyst
Very good. Thanks. So just you guys have been in this combat mode for the last, it feels like, decade. I know that there's still the prudence review ahead of you. But I'm just trying to picture Southern Company in back-to-basics mode. What does that even look like? So, that's one. And number two is, I mean, you clearly—the stock has re-rated somewhat. What is it that you think you can do well, besides just putting Unit 4 online to further re-rate the stock from here?
Chris Womack, President and CEO
Angie, let me start with the first part of your question in terms of being in combat mode doing this Vogtle period. I'd say we're going to stay in combat mode in terms of execution. Yes, hopefully, we're going to be a little boring. We think boring is beautiful. But we're going to be incredibly aggressively focused on customer service, being at the center of everything that we do, focusing on the circle of life, making sure we're maintaining a constructive regulatory environment, providing world-class service and using your language of 'in combat mode', but doing that in a very aggressive way that makes sure we're giving customers what they need from reliability, but also from a resiliency perspective, while making sure we're paying attention to issues around affordability. So, we have a lot of work to do, and so we're going to be very singularly focused on execution. I think that's going to be very important as we also make the case that we deserve that premium valuation and return back to the days of old Southern classic.
Dan Tucker, Chief Financial Officer
It is no mistake and no accident that the first page of our deck has a circle of life on it.
Angie Storozynski, Analyst
Okay. And then just maybe a smaller point, but you guys have, just like everybody else, more violent and impactful storms going through your service territory. Is there anything from one investment perspective to regulatory setup that could help you harden the grid and also assure timely recovery of any costs associated with those due to climate change?
Chris Womack, President and CEO
I would say, if you look at our capital budget today and getting pass, there are no really large projects, but it's a lot of blocking and tackling transmission and distribution with grid improvement programs—with undergrounding, with changing out circuits and improving technology scale systems. A lot of that work is to enhance and improve reliability, but also improve resiliency so that storms are more manageable. We're paying attention to more extreme weather, doing the basic work to prepare for these kinds of conditions and helping us maintain our focus on reliability and the resiliency of our system.
Angie Storozynski, Analyst
Great. Thank you.
Chris Womack, President and CEO
Once again, let me thank everybody for your calls today. It's a wonderful time for Southern Company as we brought Unit 3 commercial online, and with the progress that we're making on Unit 4, we'll continue to press ahead and move forward. But again, thank everybody for joining us today. Thank you very much, and everybody, be safe.
Operator, Operator
Thank you, sir. Ladies and gentlemen, this concludes the Southern Company second quarter 2023 earnings call. You may now disconnect and have a great rest of the day.