Earnings Call Transcript - SO Q3 2023

Operator, Operator

Good afternoon. My name is Dina, and I will be your conference operator today. At this time, I would like to welcome everyone to The Southern Company Third 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 November 2, 2023. I would now like to turn the conference 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, Dina. Good afternoon, and welcome to The Southern Company's Third Quarter 2023 Earnings Call. Joining me today are Chris Womack, President and Chief Executive Officer of The 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'll 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.

Chris Womack, President and Chief Executive Officer

Thank you, Scott. Good afternoon and thank you for joining us this afternoon. Our premier state-regulated electric and gas utilities and Southern Power continued to perform well during the third quarter. Plant Vogtle Unit 3 has continued to operate at 100% reactor power since being declared in service July 31, and we expect to deliver on our adjusted financial targets for 2023. Before Dan provides an overview of our financial results, I'd like to provide an update on several announcements since our last call. First, we continue to see economic growth across our Southeast service territories. We are excited about the important role our utilities play in attracting new jobs and investment to our states and communities and are proud of the recent recognition for those efforts as Alabama Power and Georgia Power were each named a top utility for economic development by Site Selection magazine, with Georgia Power's recognition representing the 25th consecutive year for this honor. Last Friday, Georgia Power filed an update to its integrated resource plan. Economic development in Georgia has accelerated over the past couple of years and is contributing to extraordinary projected electricity usage growth, which is significantly larger than historic levels. Electric transportation, manufacturing and its supporting supplier base have been major contributors to the state's success along with new data centers to support increased computing power needs and the growing digital economy. With this 2023 IRP update, Georgia Power is proposing additional investments into Georgia's energy future to provide economical energy solutions that should benefit our customers and communities for generations to come. Building upon the plan approved in Georgia Power's 2022 IRP, the 2023 IRP update seeks to continue the utilization of a diversified approach to help ensure resilience, reliability and flexibility on behalf of customers, and Georgia Power has requested that the Georgia Public Service Commission evaluate this update by the end of April 2024. In late September, Southern Power announced the acquisition of the 150-megawatt South Cheyenne Solar facility in Wyoming and the 200-megawatt Millers Branch solar facility in Texas. Commercial operation of the facilities is expected in 2024 and 2025, respectively. These projects represent Southern Power's 29th and 30th solar facilities, which are the newest additions to a portfolio of 5,500 megawatts of carbon-free generating capacity. Consistent with the projects in Southern Power's existing portfolio, these new projects include long-term contracts and counterparties with strong credit support. Additionally, Alabama Power's Barry Unit 8 was successfully placed in service yesterday on schedule and on budget. This 720-megawatt combined cycle unit is expected to be one of the most efficient natural gas plants in the country. Consistent with the proposed resource plan in Georgia Power's 2023 IRP update, we believe we are well positioned to continue applying our expertise and experience in constructing new natural gas and renewable generating units to serve our region's growing needs. Last week, we announced a memorandum of understanding between Southern Company and the U.S. General Services Administration to develop carbon-free electricity solutions for federal facilities across our Southeast service territory. The agreement documents our intent to collaborate on the development of a roadmap that, when executed, will lead to federal agencies buying more carbon-free electricity in the region. We view this exciting partnership as another important contribution towards Southern Company's goal of reaching net zero by 2050. And finally, last Wednesday, we issued our annual sustainability summary highlighting the great progress that we made as we continue to advance clean energy, lead through innovation, invest in our people and serve and elevate the communities that we have the privilege to serve. We have worked with our states, customer groups, communities, regulators, policymakers and other stakeholders to develop strategic solutions to deliver clean, safe, reliable and affordable energy to serve our growing economies. 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 third quarter of 2023, our adjusted earnings were $1.42 per share, $0.12 higher than our estimate and $0.11 higher than last year. The primary drivers of our performance compared to last year were warmer than normal weather conditions, changes in rates and pricing, and lower income taxes and O&M expenses, somewhat offset by higher depreciation and amortization. For the nine months ended September 30, 2023, our adjusted earnings per share were $3.01 compared to adjusted earnings per share of $3.35 for the same period in 2022. A detailed reconciliation of our reported and adjusted results as compared to 2022 is included in today's release and earnings package. For the nine months ended September 30, 2023, adjusted earnings per share are $0.34 below the same period a year ago, with the extremely mild weather conditions we experienced in the Southeast during the first six months of 2023 representing a major factor in how this year has developed. While weather conditions continue to present a risk to our fourth quarter results, we project to achieve our full year adjusted earnings near the middle of our guidance range of $3.55 to $3.65 per share. Our adjusted estimate for the fourth quarter is $0.59 per share, which implies an estimated full year result of $3.60 on an adjusted basis. Turning now to electricity sales in the economy, year-to-date 2023 weather-normal retail electricity sales were approximately 0.5% lower than sales levels for the first nine months of 2022. Year-to-date, we have added approximately 35,000 electric customers and 19,000 gas customers, trends which continue to outpace pre-pandemic levels. Strong commercial usage was offset by a return to office dynamic and residential sales as the relationship between these two customer groups appears to have largely reached pre-pandemic status. Lower industrial sales continued to be driven by weakness in the chemical, paper, and housing-related sectors. More broadly, our service territories are in a period of industrial transition, particularly as it pertains to manufacturing. Historically, significant industries such as paper and chemicals are making way for the manufacturing of solar panels, batteries, airplanes, and electric automobiles. As Chris mentioned earlier, during 2023, we have continued to see an extraordinary level of economic development activity within our service territories. While we will provide formal updates to our outlook during our fourth quarter earnings call in February, we did want to highlight the magnitude of potential change we are seeing in electricity sales growth. Recall, our previous forecast assumed annual electricity sales growth of 0% to 1%. Factoring in the power needs of these new, highly data-centric businesses and manufacturing facilities, electricity sales are likely to have an annual growth rate closer to a mid- to high single-digit range over the next five years. While there is likely to be significant incremental capital investment required to serve this level of economic development activity, we expect both existing and new customers to recognize economic benefits from this growth. Chris, I'll now turn the call back over to you.

Chris Womack, President and Chief Executive Officer

Thank you, Dan. Before taking your questions, I'd first like to provide a brief update on our progress at Vogtle Units 3 and 4. Since successfully achieving commercial operations at the end of July, Unit 3 has performed well, delivering nearly 2.5 million megawatt hours of reliable carbon-free energy to the citizens of Georgia. On Unit 4, following fuel load and during start-up and pre-operational testing, we discovered a motor fault in one of the four reactor coolant pumps, necessitating a full replacement of the pump with one from our spare parts inventory. We have successfully cleared the path in which the existing reactor coolant pump will be removed and expect to begin that activity in the coming days. Many pre-operational activities continue along a parallel path with the pump replacement, including coatings, inside containment, and preparation of the turbine for power ascension testing. After successful installation of the spare pump, we will recommence with start-up in pre-operational testing with a projected in-service date during the first quarter of 2024. Also, in late August as part of the Vogtle 3 and 4 prudence process, Georgia Power filed an application with the Georgia Public Service Commission to adjust rates to include reasonable and prudent Vogtle Unit 3 and 4 costs. Related to this application, the Georgia Public Service Commission public interest advocacy staff filed a stipulated agreement among Georgia Power and several other intervenors, which is intended to constructively resolve all issues regarding reasonableness, prudence, and cost recovery for the remaining Vogtle 3 and 4 costs not already in base rates. The Georgia Public Service Commission is expected to vote on this matter on December 19. Again, thank you all for joining us this afternoon and for your interest in Southern Company. Operator, we are now ready to take questions.

Operator, Operator

Our first question is from Carly Davenport with Goldman Sachs. Please go ahead.

Carly Davenport, Analyst

Maybe just to start to pick up on your comments on Vogtle. I guess, first, just any expectations at this point in terms of the actual process of replacing the reactor coolant pump when you'd expect to get that wrapped? And kind of talk a little bit about maybe what gives you confidence still in that Q1 2024 timeline. And any factors that you're watching that could accelerate or decelerate that timeline?

Chris Womack, President and Chief Executive Officer

Carly, again, thanks for your questions. We look at the pumps at Unit 3. I mean, the four pumps are running as designed. And as we've seen this from Sanmen in China, so we've had this experience in terms of replacement. So, we think we have a good path to replacing the pump. And so, we just feel good about the process that we've identified that is in place for removal and then replacing the spare pump. So, we feel very confident about the process and where we are with the pump replacement process at this time.

Carly Davenport, Analyst

Great. And then maybe just shifting to some of the capital opportunities that Daniel alluded to facilitate this load growth that you're expecting to see across your territory, I guess, in the context of the interest rate environment, how are you thinking about managing financing the CapEx required to support that growth? And how you'll expect to balance between debt and equity going forward.

Dan Tucker, Chief Financial Officer

Yes, Carly, it's a great question. And look, just order of magnitude, we'll provide specific guidance in February. But I think as we sit here today on the very front end of this IRP update process, we do see pretty substantial potential increases. And potentially, we're talking billions of dollars where our current five-year plan for capital is $43 billion. I think we easily see a plan that translates to something north of $45 billion, and it's really a question of how much higher than $45 billion once we get to February and kind of lay that out. And I say all that continuing to be conservative about including any owned renewables. We absolutely across all of our electric service territories expect to own renewables over the forecast horizon. But we're going to wait until there's better line of sight on those individual projects to include those. So getting to your question in terms of financing, we've been very clear about our credit objectives. And I think our profile is positioned to be differentiated, and it's our objective over the long term to preserve that differentiated profile. And so that will mean the potential for maybe turning on our equity plans. We're fortunate to have one of the largest, if not the largest DRIPs in the industry. We can generate between $350 million and $400 million a year just through those. And then we always keep on the shelf an at-the-market program just to have flexibility. So, we will absolutely do what we need to do to preserve the credit profile in terms of the balance of how that's financed. I think it's still a fraction of any incremental capital that translates to equity. Again, I mentioned billions of capital and hundreds of millions of potential equity through the DRIP. I think that will be sufficient to maintain where we want to be.

Carly Davenport, Analyst

Great. If I could just sneak one follow-up on that point, Dan. Do you have any targets for the level of parent debt that you'd like to hold going forward?

Dan Tucker, Chief Financial Officer

I think where we sit today, Carly, just kind of on an unadjusted basis, if you will, so not trying to factor in equity credit or content for any particular securities. We're a little south just of 30% overall. I think as the business grows, we don't really intend to grow that percentage. So, the absolute quantum of debt may increase over time, but the proportion of parent debt to the rest of our debt will remain about the same, I think.

Operator, Operator

Our next question is coming from the line of Shar Pourreza with Guggenheim Partners. Please go ahead.

Shar Pourreza, Analyst

Just a quick follow-up from the prior question. I guess, the opportunity set is pretty material, Dan, you're obviously highlighting it could be in the billions. I guess, how do we think about that opportunity set in relation to your 5% to 7%? So is this a scenario where it's accretive to growth or could be accretive to growth? Or is this sort of an extended runway scenario?

Dan Tucker, Chief Financial Officer

Yes, Shar, that's a great question. Chris and I have been engaging with the investment community for months leading up to the filing with the Georgia Commission. We've been recognizing that whether it’s in owned renewables or the economic development activity we’re observing, there has been potential for more capital. However, we want to clarify that our goal is not to increase the growth rate as a result of this. Rather, this opportunity allows us to enhance the growth rate profile and potentially sustain it over the long term. It’s important to emphasize that we are focused on the long term and not aiming for a temporarily higher growth rate in the short term. Additionally, customer affordability remains a key priority, ensuring that we keep a profile from a customer perspective that supports the positive regulatory environments we benefit from. Moreover, the strong sales growth we are experiencing will help address the affordability aspect.

Chris Womack, President and Chief Executive Officer

Shar, I'd like to add that you know us and our process well. We will provide guidance for 2024 in February of next year. Currently, we are assessing the various factors affecting us and will update you with that guidance then. I want to emphasize that on the development front, there are many exciting opportunities ahead. Although we're facing challenges like rising interest rates, we look forward to sharing more details during our February call.

Shar Pourreza, Analyst

Thank you, Chris, for bringing that up. Regarding the parent level maturities, they are quite significant over the next few years. Could you provide some insights on the interest rate sensitivities and how we might manage those pressures, especially as we consider 2024? I believe you previously guided us to a range of approximately 395 to 415. How would you manage that sensitivity?

Dan Tucker, Chief Financial Officer

Yes. Look, Shar, just like we did this year, we're going to kind of be thoughtful, creative, somewhat aggressive in terms of how we manage that. You saw us do the convert earlier this year that really mitigated the interest impact. We'll do everything kind of at our disposal to execute in a way that keeps rates as low as possible. I think what everyone is likely stepping back in the industry and saying is, look, we all knew interest rates were higher, and this sense of higher for longer as you sit here today, it's probably the longer piece that we all thought was perhaps not as long as what we're seeing as we sit here. But I think it's all consistent. And for us, it will be mitigated by this tremendous windfall of economic development activity we have. In terms of sensitivities, look, if you think about kind of a 50 basis point sensitivity around interest rates as we move forward, think with every incremental year, it's basically another penny of potential EPS plus or minus for that 50 basis points of interest rate sensitivity. And we're not interest rate forecasters. We're just basically using public forecasts that are out there in terms of our planning.

Shar Pourreza, Analyst

Okay. Perfect. That was all I had. I appreciate it. Thanks for the color and see you about in a week.

Operator, Operator

Our next question is coming from the line of David Arcaro with Morgan Stanley. Please go ahead.

David Arcaro, Analyst

Maybe starting on the load growth side of things first. When do you think you'll start to see that coming through in the quarter? I guess, the actual weather-normal sales were down over the last 12 months kind of a similar experience. So when do you think that inflection kind of comes to start to point the underlying electric load growth getting towards that upper single-digit level?

Chris Womack, President and Chief Executive Officer

I think as we lay out the plan and what the needs are, probably in the '26 timeframe, I think, we'll see some of this play out could be as late as '25. I mean as plants begin and they've got to be constructed. They've got to go online. So yes, we look at late '25, the early '26 timeframe. I think before you will see this kind of show up in those increased sales?

Dan Tucker, Chief Financial Officer

Yes. When you hear us talk about economic development activity and announcements, Dave, typically, that is three, four, five years from announcement time for facilities to get built, to get staffed to get trained and operating at a capacity that's meaningful to our load.

Operator, Operator

Our next question is coming from the line of Julien Dumoulin-Smith with Bank of America. Please go ahead.

Julien Dumoulin-Smith, Analyst

Indeed, likewise, Chris. Look, let's talk about the upside CapEx just a little bit further here, if you don't mind. I keep bothering you on this here. Let's talk about first Alabama. To what extent is that going to be ripe for 4Q? And just also, how do you think about the ownership angle there as you think going forward, 2.6 gigs, I think that's over six years, not trivial there as well. When you were talking about billions of upside, was that inclusive of that LMM opportunity? Or is that upside to the upside if you want to use that service?

Dan Tucker, Chief Financial Officer

It's upside to the upside, Julien. So again, and I mentioned this earlier, we're going to continue to be conservative on owned renewables that we absolutely have an expectation that will become part of the mix we're not going to forecast it until we have better line of sight on individual projects. And in Alabama, those will largely be tied to individual customer stories. When it comes to this economic development activity, while I think kind of the tip of the spear sit here today is what's happening in Georgia, there's a lot of momentum across the rest of our electric service territory for opportunities like this.

Julien Dumoulin-Smith, Analyst

Got it. Excellent. And just to clarify that, Alabama, that would be to the extent of which they're more directly negotiated here with customers that would be presumably entirely an ownership opportunity and then just to clarify Carly's question a little bit further, the FFO to debt piece of this, you're thinking about targeting like a flat level here, even pro forma for the DRIP. It's not like you're leaning into the balance sheet by only turning on the DRIP. It's that inclusive of that incremental capital, you'll still hit a fairly flat level, if you will?

Dan Tucker, Chief Financial Officer

Yes, I would describe it as flat, Julian. So, it remains flat over the long term. Our credit quality serves as a safeguard against challenges that we do not want to use up, and we are not in a position where we need to significantly increase equity for additional growth. It is a flat long-term goal.

Operator, Operator

Our next question is coming from the line of Durgesh Chopra with Evercore ISI. Please go ahead.

Durgesh Chopra, Analyst

Dan, I don’t want to rush into the 2024 discussion, but last year you clearly identified challenges from rates, and I think the 2024 projections were subsequently reduced. How do you view the 2024 situation now? Qualitatively speaking, there are ongoing challenges from rising rates, yet you are showing a stronger load forecast moving forward. Given these factors, how would you describe the current outlook for 2024 compared to your initial expectations at the beginning of the year?

Chris Womack, President and Chief Executive Officer

Let me start by saying that the issues you mentioned are part of the process we are currently undergoing, which will lead us to provide our guidance for 2024 in February. We're really excited about the positive factors from economic development activities, as well as the challenges presented by interest rates. All of these elements will factor into our calculations for the guidance we will present in February. However, it's a bit too early for us to provide any indications or guidance at this moment. We will address that in February 2024.

Dan Tucker, Chief Financial Officer

Yes. And I guess it's just a matter of discipline for us. This is you could go back to every third-quarter transcript, any third-quarter transcript ever, and you're going to hear the same answer. But I think it's fair to say where we are. Chris and I are really excited about our value proposition; I would stack up against anybody else's right now.

Operator, Operator

Shifting back to the discussion about the potential for capital expenditures, how much impact do you anticipate on customer bills? I'm curious about the substantial load growth you mentioned, which is expected to be in the mid- to high single digits. What percentage of the capital expenditures do you believe will address this load growth versus what might come from rate increases?

Dan Tucker, Chief Financial Officer

Sure. Look, there's a lot of moving parts here, as you can imagine. And I don't want to get ahead of the regulatory process and things that will be evaluated in terms of the ultimate resource plan that's decided on. But stepping back at a really high level, everything that we see from a load growth perspective relative to the resources needed to serve this growing peak load, and that's key, right? You invest to make sure you can meet the peak loads, but the customers that you're adding aren't just using electricity at the peak, and it just so happens, the customers that we're adding are expected to use electricity oftentimes 24/7. And so that kind of profile will provide more than sufficient revenue at the rate structures that exist today that is needed to pay for that capital. That is where the economic benefits for other customers have the opportunity to really help with this affordability equation.

Operator, Operator

Our next question is coming from the line of Andrew Weisel with Scotiabank. Please go ahead.

Andrew Weisel, Analyst

Okay. So first, it's a quick one. Third quarter was obviously well ahead of the estimate. I know part of that is weather, but you're still pulling to the midpoint of the full-year range rather than something higher. Forgive me if I missed it, but what are the offsets relative to your outlook three months ago?

Dan Tucker, Chief Financial Officer

So, we didn't really update the year-end three months ago. Again, just as that same discipline, we only address year-end on our third-quarter call. And so it's the first time we're really refining it. It's really about the first half of the year. Yes, we had a better-than-expected third quarter, but the headwinds of weather in the first half were pretty substantial. And that's why we're $0.34 below last year on a year-to-date basis. And so that's the biggest driver of kind of the middle of guidance expectations at the end of the year. Now I say all that, Andrew, I mean, again, we put out quarterly estimates all the time, and I kind of challenge you to go back and find a time where we didn't exceed that. So that should help with where our expectations are.

Andrew Weisel, Analyst

Yes, definitely. Okay. Got it. So you're back on track now, I guess, I could say. Next question is on Georgia, IRP. I know it's off-cycle. The typical cadence would have been to wait until 2025. How receptive are the regulators to this? I assume you've had conversations with the key intervenors. Is there any reluctance to breaking that three-year pattern? And as a follow-up, is there any thought to postponing some plant retirements? I know you talked about what you're going to add and maybe sign contracts for existing assets, but any thoughts on postponing some of your retirements?

Chris Womack, President and Chief Executive Officer

Let me take a shot at a couple of things. And first of all, we never get ahead of our regulators. Secondly, I'd say as we were going through the '22 IRP process, we did socialize and bring forth to the commission the activity that we saw occurring that there was a likelihood that there would need to be some update filing in between the three-year cycle. So this is not necessarily a surprise. We did mention that this would, in fact, be forthcoming. But yes, so we will go through the process, and hopefully, we'll get a decision sometime by April of '24 with this updated IRP. And what was the second part of your question?

Andrew Weisel, Analyst

Potential to postpone plant retirements.

Chris Womack, President and Chief Executive Officer

As you look at this need that is there, there's the likelihood that we would need some traditional units a little longer. Meaning, I think as we look at units that may have been scheduled to retire in '28, we may look to take them into the 30s. So that is a possibility as we look to respond to this growing demand for our customers.

Dan Tucker, Chief Financial Officer

And while that's an assumption in this IRP update, I think that will be a decision to be made in a future IRP proceeding in terms of those existing coal units.

Operator, Operator

Our next question is coming from the line of Jeremy Tonet with JPMorgan. Please go ahead.

Jeremy Tonet, Analyst

For those of us out of state, I was just hoping you could provide some in-state perspective with regards to Georgia and elections and the latest and what's happening there with regards to litigation and potential for these elections. What are the next steps forward here? When could these materialize? Just any thoughts on that and any implications that could mean for Southern down the road?

Chris Womack, President and Chief Executive Officer

Yes. There's a lot of activity around redistricting and lines from congressional seats. But in terms of the issue in Georgia regarding the Public Service Commission, the Rose case, that matter is still pending before the 11th Circuit Court of Appeals. And there has not been a decision there. So the other matters that may go before the Georgia legislature for redistricting do not include matters consumed in the Rose case. So we are still waiting for a decision from the 11th Circuit on that matter.

Jeremy Tonet, Analyst

Got it. I mean would you expect those two elections to be held in '24 or just can't really tell too much at this point?

Chris Womack, President and Chief Executive Officer

I think you answered your question. We can't really tell us this time.

Jeremy Tonet, Analyst

Fair enough. Fair enough. And then switching gears here, natural gas clearly a key component to the energy mix, as you talked about earlier. Just wondering, it's not as easy to build a natural gas pipeline as it was at points in the past to supply into the state. I'm just wondering where nat gas that you see incremental supply coming from? Is this MVP? Is this other sources? Or just how do you see that dynamic at this point?

Chris Womack, President and Chief Executive Officer

A couple of things, I mean there are different lines and different processes that we're in the midst of in terms of trying to expand pipeline capacity. And so we are working with existing companies; one, expanding on existing infrastructure where possible, but also working to find ways to, in fact, increase pipeline capacity and pipelines themselves all across our territory. So that's all I can speak about that at this time. Yes, we know there are challenges there, but we think it is essential and important to support us being able to serve our customers with the reliability they demand and they need. And so, we are continuing to pursue various hosts of alternatives and options to make sure we have the supply that we need.

Jeremy Tonet, Analyst

Got it. Fair enough. And one last one, if I could. Just be it related to Vogtle or otherwise, just wondering how could green hydrogen play into the IRP and your view? Any plans to test that out as a power plant fuel?

Chris Womack, President and Chief Executive Officer

And we have. I mean we've done one of the largest blends, and we're looking at other opportunities. As you know, we participated in the hydrogen hub in the Midwest. We were not successful with the hydrogen hub that we participated in here in the Southeast, but we continue to have conversations and discussions with a number of customers. And I think we're all interested in finding ways to get the price of hydrogen down and thus also create the infrastructure to move hydrogen around. So yes, I mean, we're still all arrows in the quiver, we're looking at every option for renewable resources to meet the needs of our customers and hydrogen is a big consideration for us.

Operator, Operator

Our next question is coming from the line of Angie Storozynski with Seaport. Please go ahead.

Angie Storozynski, Analyst

So just two things. One, a small one, Southern Power, I mean, I was kind of surprised to see the announcement about the solar project acquisitions. You have struggled to find any projects that actually make sense from an economic perspective. Now we're in a meaningfully high interest rate environment and now you're going after these projects. So I'm just wondering if there's something specific about these two projects? Or is it just that you are managing your FFO using some of the solar benefit and on the back of the IRA?

Dan Tucker, Chief Financial Officer

Yes. Great question, Angie, because it had been a while since we've done anything at Southern Power and really what changed was the IRA. So, we had stopped doing solar projects kind of middle of the last decade. We did a lot through 2015 through 2016 and then didn't do any since because we didn't like the profile of investment tax credits for solar projects. The PTC is something that matches much better our regular, predictable, sustainable earnings profile and the IRA kind of unlocked a lot of development activity on the solar front. And so the opportunity set was really big, and we narrowed it down to a couple of projects here recently that fit the kind of criteria we look for. Look, again, just to reiterate for everyone what we do at Southern Power, it's long-term contracts, it's creditworthy counterparties. It's returns that are better overall from an equity perspective than our regulated business, and it fits our overall profile. Southern Power is balance sheet financed; in of itself, it's a BBB+ company, and it's important. If you think about the bulk of Southern Power, the rest of it, the natural gas fleet, you think about what's happening with capacity needs in the Southeast, that business has become something of a crown jewel in the Southeast because it is one of the best providers of reliable, dispatchable capacity in the Southeast. So it's a business that's important to us, and these were two great opportunities to grow it.

Angie Storozynski, Analyst

But again, it's not again, when I think about Vogtle and the improvement in cash flow on the back of the COD of those units, you should be probably the very last or one of the very last utilities that needs to manage FFO using those PACS credits. So this is not…

Dan Tucker, Chief Financial Officer

This is not a credit play, Angie, that 0%.

Angie Storozynski, Analyst

Okay. And then secondly, a different note. I saw that there was another management change at Alabama Power yesterday. Again, if I'm not mistaken, that's the third one this year. Just caught my attention, if there is again, if it's just the coincidence that we've had these three management changes at Alabama Power, or is there something more to it?

Chris Womack, President and Chief Executive Officer

No, Angie, I wouldn't read anything more than that. I mean you've had a number of individual leadership there who have put 40 years of service in that have chosen to retire, and then the opportunity to bring in and bring in some new talent. I think that helps the overall team. But as you know, we pay a lot of attention to succession planning. And we do a lot of work internally in terms of growing our teams. But I think we're also wise enough to know when we can also go invest in some talent from the outside to bring in to our team and make our overall team better. So I wouldn't read anything more to it than just the reality of a couple of individuals deciding to retire and us moving some people around.

Dan Tucker, Chief Financial Officer

Yes. You didn't hear that 40 years and then we're back.

Operator, Operator

And our last question for today is coming from the line of Travis Miller with Morningstar. Please go ahead.

Travis Miller, Analyst

Hello, you answered almost all my questions on the capital financing and even used where I was going to use creative, but I'll throw out their non-traditional. Anything we've seen several other utilities who needed to raise financing, use some non-traditional means divestitures, minority interest sale. Is that something in the toolbox for you? Or can we just rule that type of stuff out?

Dan Tucker, Chief Financial Officer

Yes. Look, there's always a toolbox. I would argue our toolbox is a lot smaller than it used to be when it comes to alternative sources of capital. We did a lot of work over the last several years to kind of hone this portfolio of companies to something that really fits and that we feel really good about. So are there some small opportunities? Yes. But do we have any for-sale signs sitting out there right now? No?

Travis Miller, Analyst

Okay, makes sense and then a quick follow-up. The dividends, what do you think the Board is looking for to get off that $0.08 or lift growth rate to 4%, 5%, 6%? What are your thoughts around that?

Dan Tucker, Chief Financial Officer

Yes. I think it's primarily just working our way down to a sustainable payout ratio. So if you think about where our guidance sits here in 2023, our payout is going to be something like 77% for 2023. That's not a sustainable payout ratio for a growing company. Now that's largely a function of the ROEs we've been earning at Georgia Power during construction of Vogtle 3 and 4. As that rolls off, that payout ratio will begin to come down, but we just need to get it somewhere comfortably into something that probably starts with a six in order to start evaluating a higher growth rate.

Operator, Operator

And that will conclude today's question-and-answer session. Sir, are there any closing remarks?

Chris Womack, President and Chief Executive Officer

Again, thank you, everyone, for joining us today. We really appreciate your interest in Southern Company. And we look forward to seeing many of you very, very soon. In the meantime, if you have questions, please give us a call. But again, thank you very much for joining us today.

Operator, Operator

Thank you, sir. Ladies and gentlemen, this concludes The Southern Company third quarter 2023 earnings call. You may now disconnect.