SOUTHERN Q2 FY26 earnings call SO

Southern Company continues to experience extraordinary economic development momentum, particularly from data centers and other large-load customers in its Southeast region. In Q2 FY26 alone, the company secured 6 gigawatts of newly contracted customer load, including 3 GW for Alabama Power and a 3.2 GW, 25-year contract with OpenAI for its New Savannah, Georgia site. This brings the total contracted large-load agreements across electric subsidiaries to over 17 GW by the mid-2030s, with an additional 8 GW in late stages of development, including 3 GW projected to finalize near-term.

The company reported strong adjusted EPS of $1.13 per share for Q2 FY26, exceeding estimates by $0.13 and up $0.21 YoY. Year-to-date adjusted EPS reached $2.46. This performance was driven by increased usage, customer growth, higher AFUDC, equity method investments, and tax impacts. Management now projects full-year 2026 adjusted earnings to be near or at the top of its $4.50 to $4.60 guidance range, with a Q3 estimate of $1.65 per share, reinforcing confidence in the long-term outlook.

The significant new load is driving the need for additional power generation and infrastructure. Southern Company has secured approvals for 10 GW of new company-owned generation resources (thermal, battery, solar) and hundreds of miles of transmission lines. Ongoing Requests for Proposals (RFPs) at Alabama Power and Georgia Power are underway to procure additional generation resources for the early 2030s. These potential new generation investments, if company-owned resources are selected and authorized, would represent substantial incremental capital investment beyond the current base plan.

Southern Company is proactively managing its equity needs to support capital investments and achieve its 17% FFO to debt target by 2029. In Q2 FY26, an additional $700 million of equity was sourced through the at-the-market (ATM) program with forward contracts settling through 2028. This issuance, combined with prior equity raises, has reduced the projected remaining equity need by 2030 to $1.1 billion, demonstrating a shareholder-friendly and disciplined financing approach.

The company emphasizes its commitment to rate stability and reliability for customers, having joined the national rate payer protects and pledge. Large-load contracts include minimum bills covering 100% of incremental costs and strong termination payments backed by high-quality collateral, ensuring protection for investors and existing customers. Retail base rates are held stable in Georgia and Alabama until 2029, with significant customer benefits identified from previously signed large-load contracts, demonstrating that growth can benefit all stakeholders.

Southern Power sees recontracting opportunities as existing tolling agreements roll off, with potential for upside in pricing compared to original contracts, contributing to long-term plan durability. The company is actively engaging with counterparties, including hyperscalers, on these opportunities. Management also highlighted the importance of new nuclear generation for the country's energy future in the 2030s, working with the administration and other parties to advance these projects, and is having conversations with hyperscalers about their potential role in managing cost overrun risk.

The OpenAI contract includes 1 gigawatt of flexible demand response, marking the first time Southern Company has implemented such a feature for a data center. This demand response capability provides tremendous value and benefits to the entire grid by allowing the system to save peak load during high demand periods, ensuring the most economical resources are utilized and providing benefits to the broader customer base.