Southern's Approach to Serving Its Customers and Leading Economic Development in the Southeast

Announcer:
Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Shelby Tucker:
Hey everyone. Welcome to the podcast today. I'm Shelby Tucker, power and utility analyst at TD Cowen, and we are here at the TD Energy Conference in Austin, Texas. I'm here with Aaron Abramvitz, senior vice president treasurer of finance at Southern Company. Aaron, welcome to our program today.
Aaron Abramvitz:
Hey, good day, Shelby. Glad to be here.
Shelby Tucker:
Let me start off, Aaron, just to give me a little bit of sense of some of the jobs you've had at Southern as we explored the story.
Aaron Abramvitz:
Sure. Well, first of all, hey Shelby, good to see you again. This is a great setup here in Austin and the TD Cowen team are doing great with this. So happy to be here representing Southern Company to our investors.
I've been a part of Southern Company for 25 years. I've had multiple roles, started off building models and spreadsheets. I even did a year stint in forestry and right away services at Georgia Power Company. But a lot of my career was working on our large projects at the Kemper County Energy Facility in Mississippi, and then also three years completing and wrapping up Vogtle 3 and 4 near Augusta, Georgia. I've also been a CFO of Georgia Power Company and most recently now senior vice president of finance and treasurer for Southern Company.
Shelby Tucker:
Great. Well, thanks for that. One of the things that I want to talk about, which is very germane to what we've seen in the market has been the AI developments and the projects that are tied to that. Can you maybe just give us an understanding of what is Southern doing in their respective states? Where are you seeing some of the opportunities for further development?
Aaron Abramvitz:
Sure. So this is a wonderful opportunity, I think across the country, but especially in the Southeast, in the territories that Southern Company serves. For us being vertically integrated and we own three vertically integrated electric utilities, Alabama Power, Georgia Power, and Mississippi Power Company. I believe we're on the forefront of this and recognizing this entry of this opportunity into the Southeast two or three years ago.
And so serving this opportunity is wonderful not only for investors, but it's so beneficial for our customers. And when we serve growth the right way, it really can benefit everybody. And so for us, you think about growth and the size of Southern Company as a whole, to date, we've signed roughly 17 gigawatts of contracts and that's a pretty substantial amount here. And we think there's another eight gigs or so coming right behind that with three gigs in the next several months.
And so you think about that growth and that opportunity for not only the company and future investment. But as we look to serve that growth, Shelby, we find ways to where our existing customers don't have to pay that bill. It doesn't impact our existing customers. In fact, it benefits them. So for example, at Georgia Power Company with the 12 gigawatts that they've signed, they've committed to $2.8 billion of customer benefits, 2029, 2030 and 2031.
So we're serving all this additional load, data centers, AI, large industrial customers, building large infrastructure, 10 gigawatts across the Southern system, and our customer rates aren't going to go up. In fact, they have a potential to go down or at least stay stable. And so it's a really marvelous kind of opportunity for both sides of the equation to where we can keep customers at the center of what we do, but then also benefit shareholders as well.
Shelby Tucker:
Actually, those are remarkable numbers. How do you actually ensure that you can see those kind of deals even going forward? I mean, obviously we've seen a lot of success with the existing hyperscaler customers. But going forward, how are those conversations going?
Aaron Abramvitz:
So they're large contracts. You're dealing with sophisticated partners and it takes time. And so what we've done across Southern Companies, we've put what we call standards in place. And at Georgia Power, they have what they call rules and regulations they have to adhere by from their public service commission to ensure when we sign these long-term contracts for data centers and hyperscalers, it's a minimum of 15 years. The average contract life for Southern Company right now of that 17 gigawatts is roughly 20 years. So you have long duration contracts.
Then we also have what we call as a minimum bill component. And that minimum bill component is really what ensures that our existing customers benefit. And that bill is comprised of the incremental cost to serve that new load. And that minimum bill is due from these large customers regardless if they use the energy they say they need or not. So it's a commitment on both sides, if you will, especially by the hyperscaler when they locate in our state that they're also committing that customers aren't going to be impacted.
And then two other pieces of the contract structure that's so important here is we make sure that we have appropriate termination payments. Because things will change. You and I have been around this industry for a long time and things do change. And if hyperscalers or data centers or AI, if something occurs in the business model that it doesn't match what people expect today, then in our service territory with the contracts we've signed, those data centers owe us and our customers a termination payment.
And then of course, what's even more important in the termination payment is how is that termination payment backed? And it's backed by collateral. So whether it's a parent guarantee, a letter of credit from a large bank. We're ensuring that everybody can benefit from this growth opportunity even if for some reason things change in the future.
Shelby Tucker:
Got it. One of the things that strikes me as remarkable is the numbers you just mentioned and about the gigawatts that are coming or that could be coming. It does beg the question as to how do you get those resources? Everywhere else in the country we're seeing the similar numbers. How do you make sure that you contract to get those services from the engineering construction companies or others?
Aaron Abramvitz:
Sure. And so for those of y'all that know Southern Company, we have a long history of building generation, building transmission assets. In fact, we have our own engineering construction services team that has the ability to monitor contracts, monitor construction, and even go procure our own resources to build.
For us with this 10 gigawatt build out that we have between gas turbines, battery energy storage, upright at nuclear facilities and hydro facilities, we're contracting with EPC firms, also making sure that we have the turbines on the gas side, so we have long-term contracts there and secure turbines there. But then making sure that we also have the labor relationships and we can manage that risk of, like you said, Shelby, everybody's doing this across the country. Utilities are building infrastructure, data centers have to build their infrastructure. You have oil and gas, and we're talking about this conference, building their own infrastructure too. Everybody is looking for labor and equipment. And so it's the size and scale of the players that's really going to matter most managing that risk to make sure that you can get the labor, you have the right relationships and manage that risk going forward.
Shelby Tucker:
Got it. And we talked a lot about Georgia, but maybe give us a little sense of what's happening in Alabama and Mississippi, the other two big electric states that you have.
Aaron Abramvitz:
Sure. So Georgia was at the, if you will, the forefront of all this over the past couple years. And for about a year or two, we've been seeing what we would used to say is momentum moving west. And most recently in the second quarter of this year, Alabama Power was able to sign three gigawatts of large load contracts. So their tally is up to four gigawatts of large load contracts.
And for a utility that size, that is so important for its customer base and its state for economic development. And even Mississippi Power, it's our smallest electric utility. It even has half a gigawatt of large load investment in large load customers as well. So yes, Georgia Power is our largest subsidiary, has the largest compliment today of large load data center contracts. But then Alabama and Mississippi are coming right behind them and we're seeing that momentum move west.
Shelby Tucker:
Got it. And going back to some of your projects and how you fund them, clearly there's been some benefits that the government has provided in terms of federal loans, but also some regulation on the state side to provide some kind of benefit. Can you maybe explain to us a little bit where you're seeing those benefits and how much more is there to tap into?
Aaron Abramvitz:
Sure. So let's start at the local level, the states. I guess we're fortunate in the Southeast to have very business friendly operating climates. Whether it's for utilities, large industrials, manufacturers, banks, if you will. But even when you're bringing large investments and large economic development projects like data centers to the Southeast, so you have a very business friendly climate.
And even in the Southeast, and we're hearing this a lot across the country, everybody wants to make sure that data centers and hyperscalers are paying their fair share. And that has to go with tax base, water, everything else. And the way that our three states are working with hyperscalers and even other large economic development projects is to ensure that those projects, when they come to our states, do pay their fair share, not only for electric power, but also for water and other pieces of the infrastructure. So we have wonderful state support in all three of our states.
On the federal side, earlier this year we announced and we signed with the Department of Energy a 26 and a half billion dollar loan guarantee portfolio across Alabama and Georgia. The majority is at Georgia, but a good portion is also at Alabama. That's going to benefit our customers. That's direct savings for our customers over the life of the loans, probably 25, 30 years of $7 billion in interest savings, as we build all this new infrastructure to make sure that we have reliable and affordable power for our customers. So you have wonderful federal support and they also have a really constructive state regulation construct that ensures that when economic development comes to our states, everybody benefits.
Shelby Tucker:
Got it. And it's no secret that the Trump administration is looking to support the development for new nuclear as one, the last company that actually developed a nuclear plant in this country a few years ago and two, your time at Vogtle nuclear facility. Any lessons you can tell us or can you share with us on what you learned on Vogtle and what do you expect going forward?
Aaron Abramvitz:
Sure. So first, I think we all can say that this country needs more nuclear generation in the future. Considering the growth in AI, the growth in onshoring, in manufacturing, we're going to need more nuclear in this country. The federal government and the administration has done such spectacular work in supporting that effort in trying to ensure that the industry, the nuclear construction industry can get back to work.
For us, what we learned at Vogtle 3 and 4 was one, it's a long process. It took us a decade or more to build those two units and things will happen, things will occur. And so what you want to do is make sure that if you're going to venture off as a utility or electric company to go build a new nuclear unit, one, you know how long it's going to take. Two, things are going to happen, just like we talked about earlier, things change and you can manage that tail risk. You can manage those things of a global pandemic happening, a contractor going bankrupt, a natural disaster occurring, or just a change in regulation of law.
And so you got to make sure that you have that good risk control and paradigm. So at Vogtle 3 and 4, one of the things we learned was managing through those risks and managing through, if you will, the complexities of all the different trades working on the site. At one point we had almost 10 or 12,000 people working on that site at one time. And that takes a lot of coordination and what we would call project controls to make sure that we can see cost coming, schedule changes, but then also manage our risk appropriately. And so thinking Vogtle 3 and 4, it's that long duration kind of project to keep those relationships strong with your vendors, your EPC. But then also the folks that are actually building it, the labor and the trades, keeping those relationships tight and strong is so important.
Shelby Tucker:
One of the less talked about part of your business is Southern Power, your independent power business, that's a very highly contracted portfolio. Maybe help us understand the strategy that you have in mind there and what are some of the opportunities that you're seeing for that business?
Aaron Abramvitz:
Sure. So Southern Power is a wonderful complimentary business to the Southern Company regulated electric and gas portfolio. It's been in its existence for probably 25 years or more. And our strategy there is to have energy infrastructure under a long-term contract with credit worthy counterparties. We're not taking transmission risk, we're not taking fuel risk. But we, with our size and scale of Southern Company and Southern Power being part of that, have the ability to provide energy to customers. Whether it's renewable power outside the Southeast, we have some renewable installations in the Southeast, but we have a wonderful thermal gas portfolio across all three of the states that we serve and even in the Carolinas that serve load serving entities like a Georgia Power company or like a municipality at our cooperative.
And so as you think about not just investor owned utilities growing and those service territories growing, cooperatives, municipalities, their service territories are also growing as data centers come across the country and across the Southeast. And that represents a wonderful opportunity for Southern Power to play in that space and competitively bid for purchase power agreements that they have signed with other counterparties maybe coming off a contract so we can re-contract probably at a little higher margins considering where the market is today. Or maybe we even have the ability to do a new build gas generation facility if you can find the right partner to sign up with.
Shelby Tucker:
And then maybe a last topic from me is all this needs capital. Maybe just help us understand where do you find the capital? Are there any areas that are more unusual for a source of capital? You mentioned the federal government loans is a good example of that, but maybe elaborate on that.
Aaron Abramvitz:
So Shelby, you're right. For Southern Company, we're investing $81 billion over the next five years and we have the ability to be opportunistic of how we source capital. What's so important though of how we source capital and how we think about our value proposition to investors is not just the equity return, but then also making sure that we are strong credit. We firmly believe you can't be a premium equity if you're not a strong credit and strong credit quality.
And so as we source our capital, whether it's through our at the market program for equity, a healthy compliment of hybrid securities with our debt, or even just normal, if you will, run-of-the-mill debt issuances, we make sure we balance that out. But what's so important is that we do what's right not only for the equity investor, we got to make sure we keep that credit quality strong for the fixed income side as well.
Shelby Tucker:
Great. Well, Aaron, thank you so much for your time today. We really appreciate you being here at our TD third annual energy conference here in Austin, Texas.
Aaron Abramvitz:
You're welcome. Happy to be here, Shelby.
Announcer:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.