The recent Q1 2024 earnings call for Southern Company was a celebration. Vogtle Unit 4 had just come online, making the site the largest clean energy generator in the country. CEO Chris Womack beamed with pride, touting the perseverance that brought the project to fruition. Yet, beneath the surface of triumph, a curious narrative lurked. Southern Company, a company experiencing an unprecedented surge in clean energy demand, was seemingly downplaying the financial benefits. Could it be that the very growth that positions them as a clean energy champion is actually putting pressure on their bottom line?

This counterintuitive story emerges when comparing the Q1 2024 transcript with the previous quarter's (Q4 2023) pronouncements. In Q4, Southern Company, particularly its subsidiary Georgia Power, painted a picture of electrifying growth, fueled by data centers and new manufacturing facilities. This growth, predicted to average 6% annually from 2025 to 2028, was heralded as a major driver for capital investment and, crucially, a powerful means to "derisk" their outlook and reduce customer rates. The logic seemed clear: higher kilowatt-hour sales would offset the cost of new resources, benefiting both customers and investors.

However, the tone shifted noticeably in Q1. While acknowledging strong economic development and a 12% surge in data center sales, Southern Company offered a muted perspective on the financial implications. CFO Dan Tucker, when asked about the impact of load growth on earnings, stressed that they were primarily focused on serving peak demand, not continuous 24/7 usage. This implies that a significant portion of the new clean energy demand, while substantial in kilowatt-hours, might not translate into the need for additional peak capacity investment.

Further deepening the puzzle is their approach to pricing for new customers. Both Womack and Tucker reiterated their commitment to affordability, suggesting that they are actively working to price new load in a way that puts "downward pressure" on rates for existing customers. While benefiting existing customers is commendable, it raises a critical question: is Southern Company prioritizing customer rate reductions over maximizing profit potential from this unique growth opportunity?

This hypothesis is bolstered by the company's cautious approach to capital forecasting. Despite the acknowledged growth, Southern Company only included a portion (roughly 60%) of the proposed new resources from the Georgia IRP update in their capital plan. Moreover, they remain notably conservative on rate-based solar projects in all their service territories.

The Potential Profit Squeeze

Let's consider some figures to illustrate this potential profit squeeze. Tucker stated that a 1% change in overall sales translates to roughly $40 million in revenue. However, he noted that for many of the new large load customers, this number could be "slightly below," suggesting a range of $20 million to $40 million. Assuming a conservative $25 million per 1% change, Southern Company's 12% surge in data center sales in Q1 should have yielded approximately $300 million in additional revenue. While a precise earnings impact is impossible to calculate without more granular data, it's clear that this significant revenue increase wasn't reflected in their earnings pronouncements.

Moreover, their projected 6% annual sales growth from 2025 to 2028, if priced at a lower rate for new customers, could represent billions in foregone revenue over the long term. While the potential for rate base growth remains, the question becomes: will that growth be sufficient to offset the impact of lower pricing on their earnings growth trajectory?

Projected Sales Growth vs. Potential Revenue Impact

The following chart illustrates the potential disconnect between Southern Company's projected sales growth and the potential revenue impact, assuming lower pricing for new customers.

Southern Company's strategy appears to be a long game, prioritizing customer and community relationships, maintaining strong credit metrics, and ensuring long-term sustainability. This approach aligns with their history of prioritizing the "fundamentals" of their utility business. However, their reticence to tout the financial benefits of the clean energy surge raises a fascinating dilemma: is there a trade-off between being a clean energy leader and maximizing shareholder value? Only time will tell if their "boring but exciting" focus on fundamentals will ultimately yield the greatest rewards for both customers and investors.

"Fun Fact: Vogtle Units 3 and 4 are the first new nuclear units built in the United States in over 30 years! The Vogtle site is now the largest generator of clean energy in the country."