Good morning. My name is Nelson, and I will be your conference operator today. At this time, I would like to welcome everyone to Southern Company's first quarter 2020 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. At that time, if you have a question, you may press the one followed by the four on your telephone. To reach an operator at any time, you may press the star followed by the zero on your telephone keypad. Please note today's call is being recorded Thursday, April 30th, 2020. I will now turn the call over to Mr. Scott Gammill, Investor Relations Director. Please go ahead, sir.
Thank you, Nelson. Good afternoon. Welcome to Southern Company's first quarter 2020 earnings call. Joining me today are Tom Fanning, Chairman, President, and Chief Executive Officer of Southern Company, and Drew Evans, 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 Tom Fanning.
Good afternoon, and thank you all for joining us. I hope that you're well. As you can see from the materials we released this morning, we reported strong adjusted results for the first quarter ahead of our estimate. This solid start to the year positions us well as we look to overcome short-term sales impacts from the coronavirus. Drew will provide you with more detail on our financials momentarily. I will go ahead and turn to our current operating environment amid the coronavirus pandemic. At Southern Company, our top priority remains keeping every employee healthy and safe while we continue to provide clean, safe, reliable, and affordable energy for our customers. We were well-prepared to quickly make necessary adjustments across our business, activating incident response teams throughout the company in February.
We continue to execute COVID-19 pandemic plans for our business. To date, our operational performance has been exceptional. We have not experienced, nor do we currently foresee, supply chain disruptions for our utilities or our construction projects. We often talk about the importance of the reliability and resiliency of our electric and natural gas infrastructure, which has delivered remarkably well during this time. In face of COVID-19, our biggest asset has really been the reliability and resiliency of our workforce. I want to thank our employees who have risen to every challenge. We have been resourceful in rapidly procuring and deploying necessary protective equipment and implementing effective protocols to safeguard against the virus. Our operations and customer service teams have continued to work around the clock.
We are finding solutions to effectively work in teams remotely. We are communicating with our workforce and external stakeholders in a whole new way. We've implemented a wide range of projects to support the physical, financial, and emotional well-being of our employees during this time as they continue their superb work to support the operations of our company. It is also a hallmark of our company to be a citizen wherever we serve. We have worked to identify how we can best assist our communities during these difficult times. Southern and its subsidiaries are targeting a commitment of nearly $10 million in foundation and charitable contributions. Our employees have logged thousands of volunteer hours to assist those impacted by the coronavirus pandemic. I expect we will do even more in the coming months. Let's turn now to an update on Plant Vogtle Units 3 and 4.
We remain focused on meeting the November 2021 and November 2022 regulatory-approved in-service dates. We continue to maintain an aggressive work plan on-site as a tool to help position us to meet those dates. Recall in February, we refined the aggressive site work plan to reflect a May 2021 completion target for Unit 3 and a March 2022 completion target for Unit 4. We also laid out a November benchmark schedule and related milestones for Unit 3. Through March, production for Unit 3 was generally consistent with the refined aggressive site work plan. April's performance was challenged due to COVID-19 impacts, which put us slightly behind the aggressive site work plan. Despite these challenges, today, direct construction is approximately 90% complete. Notably, just late-breaking news, we have just completed open vessel testing. That came at about 1:00 P.M. today.
We also reached several interim construction milestones for Unit 4 during the quarter, including the installation of the polar crane and setting the containment vessel top head. Before giving an update on recent productivity, I want to highlight our commitment to the safety of our workforce on-site and the surrounding community. Since the beginning of the pandemic, we have taken a number of proactive measures intended to protect our workforce and the community against the spread of COVID-19. As we implement these measures, we've engaged independent medical advisors to guide our actions to reduce the possible spread of the virus. Among other measures, we have provided additional protective equipment, enhanced sanitation practices, and implemented social distancing strategies such as spreading out and increasing common areas, eliminating group transportation at the site, and mandating those who can telework to do so.
Beyond these basics, early on, our protocol on site ensured that anyone tested, and their close contacts, were promptly self-isolated off-site. We acted quickly to build an on-site medical clinic designed to expedite test results, minimize turnaround time for close proximity screening, and improve facilitation of clearing personnel to return to work. Throughout this time, we have remained in close consultation with the Nuclear Regulatory Commission and the project's co-owners, as well as local and state authorities. We are also consulting with and monitoring other mega projects. Notably, last month, the president of the North America's Building Trades Unions commended Southern Company for going above and beyond the call of duty to keep their members on the Vogtle construction site safe and healthy. Turning to our recent progress.
Although overall monthly production through March was largely consistent with the refined aggressive site work plan, mechanical, electrical, and subcontract activities began to build a backlog to Unit 3's aggressive site work plan at the end of March. That trend was exacerbated through April as we began experiencing impacts across the site related to the coronavirus pandemic, including an increase in workforce absenteeism. Two weeks ago, in an effort to mitigate the impact of COVID-19, we announced our intent to reduce density on the site and take workforce down by 20%. As we work through this transition, we expect to see a decrease in near-term production similar to the sawtooth effects that we have experienced in the past. The longer-term objective is to gain operational efficiencies and productivity by reducing workforce fatigue and absenteeism. As we move ahead, we will continue to evaluate the effectiveness of our streamlined workforce.
Now, as you know, we regularly evaluate both cost and schedule, and we have factored recent developments into our ongoing analysis. Looking first at schedule, we are prioritizing key work fronts on Unit 3 and continue to work towards the aggressive site work plan targets, some of which have been pushed back slightly in light of recent events. The next major milestone for Unit 3 is the start of cold hydro testing, which is currently planned to occur in the June to July timeframe. Considering our expected timing on the start of cold hydro testing, we expect Unit 3 hot functional testing to commence in the August-September timeframe. On the assumption that we are able to stabilize and increase productivity to pre-pandemic levels, we are maintaining the aggressive site work plan target of year-end for Unit 3 fuel load.
As a reminder, construction completion of about 2% per month is consistent with the aggressive site work plan. Taking into account our performance to date, we now project that we need to complete approximately 1% per month to meet the November benchmark schedule. This is slightly down from the 1.3% we discussed last quarter. Importantly, even amid the outbreak of the pandemic, for April, our construction completion rate was about 1.25%, which supports meeting the November 2021 regulatory approved in-service date. Critical areas of focus remain electrical and subcontract performance. Lastly, consistent with the prioritization of Unit 3 and related staffing, we have shifted the target completion date on the aggressive site work plan for Unit 4 back to May 2022, which still provides six months of margin to the regulatory approved in-service date.
Recall, under the refined aggressive site work plan we laid out in February, we accelerated the target completion date for Unit 4 by two months to March. The current action takes us back to the prior date of May 2022. Turning now to cost. Based on our most recent assessment, there is no change in the total project capital cost forecast. In the first quarter of 2020, Georgia Power allocated an additional $66 million of its project contingency, reflecting cost risks associated with construction productivity, field support, subcontracts, and procurement, as well as the impacts of the April 2020 reduction in workforce. Recall the estimated cost of time between the aggressive site work plan and the regulatory approved November in-service date, or a schedule cost margin is embedded in Georgia Power's base capital forecast.
With this quarter's contingency allocation, the scheduled cost margin, and the remaining cost contingency combined continue to represent approximately 20% of the remaining estimated cost to complete. As we have said, we expect to utilize the entirety of the contingency funds as we progress towards the completion of the project. The team at Vogtle Units 3 and 4 have worked incredibly hard to create an environment at the site that has led to meaningful progress over the past few months, even while managing through this unprecedented pandemic. The next few months will be pivotal as we adjust to a smaller, more streamlined workforce and seek to improve productivity. The safety of our workforce and the surrounding community remains paramount, and we will continue to guide our decision-making at the site. Importantly, we still expect to meet the November regulatory approved in-service dates for both Units 3 and 4.
Drew, I'll turn it over now to you for an update on our financials and our outlook.
Thanks, Tom, good afternoon, everybody. I hope you all are well. As Tom mentioned, we had a very strong start to the year. First quarter adjusted EPS was $0.78, which is $0.08 higher than last year and $0.06 above our estimate for the quarter. The primary driver compared to last year was constructive state regulatory actions, which were completed in 2019 at our utilities. In additon through aggressive cost control, we were able to decrease non-fuel O&M year-over-year, which helped us overcome a $0.10 impact from warmer than normal weather in the first quarter. A detailed reconciliation of our reported and adjusted results is included in today's release and earnings package.
Weather-normalized retail sales for the first quarter of 2020 were up slightly compared to last year, led by our residential customer class, with only modest impacts from COVID-19 evidenced in the last two weeks of the quarter. We added over 20,000 new electric and natural gas customers across the system, which is consistent with our expectations. With COVID-19 top of mind, let's go ahead and turn our assessment of potential to the assessment of potential business impacts. While we did not see a meaningful earnings impact from COVID-19 in the first quarter, we are continually assessing potential financial impacts on our business. At this time, we do not expect coronavirus impacts to materially affect our long-term outlook. Our expected long-term EPS growth rate remains 4%-6%. Our $40 billion five-year capital investment plan is unchanged. We do not foresee a need to issue equity through 2024.
Liquidity is strong with good access to the capital markets at both the parent and our subsidiaries. With last week's announcement of an $0.08 annual dividend increase, the 19th consecutive annual increase, we continue to demonstrate our commitment to enhancing shareholder value. As we think about the potential near-term impacts of COVID-19 on our 2020 expectations, our key focus areas are sales, bad debt expense, and liquidity. Just a moment, I'm going to switch microphones so folks can hear me better. Starting with sales, as I mentioned, weather-normalized retail sales were up slightly for the first quarter, likely reflecting higher residential demand at the end of March as people began teleworking. Thus far in April, total estimated weather-normalized electric retail demand is lower than our forecast by approximately 8%.
Though April lows are historically volatile as customers switch between heating and cooling, we have seen demand stabilize at these approximate levels over the last few weeks. We will continue to closely monitor trends as businesses within our states begin to reopen. Looking ahead, we are basing our current forecast for 2020 on a U-shaped economic recovery that reflects a midsummer phase-out of the stay-at-home policies with modest economic recovery across the service territories over the balance of the year. Using these assumptions, our projections indicate an overall decline in retail sales for the full year in the range of 2%-5% on a weather-normalized basis, with residential up 1%-3%, commercial down 5%-10%, and industrial down 4%-8%. As a reminder, our electric sales mix is split about a third, a third, a third across each customer class.
Retail sales in these ranges would lower total non-fuel electric revenue by approximately $250 million-$400 million on a consolidated basis. We plan to mitigate these impacts by continuing to aggressively manage non-fuel O&M throughout the remainder of the year. While the current situation is unprecedented, we demonstrated a similar level of cost discipline in response to the 2008 to 2009 recession, which gives us confidence in our ability to deliver in the current environment. Actual impacts will be highly dependent on the duration of stay-at-home policies and the pace of economic recovery. As visibility into these factors improves, we will hone our expectations around an appropriate level of cost control. At this time, we do not anticipate significant sales or financial impacts from COVID-19 on Southern Power or Southern Company Gas.
Due to the long-term contracted nature of Southern Power's business model, we expect it to be largely insulated from pandemic impacts. Southern Company Gas has already achieved roughly half of its expected full-year net income in the first quarter, and we expect earnings over the remainder of the year to be consistent with our forecast. In addition to sales, we are also assessing the potential for an increase in bad debt expense, specifically our electric utilities. Our utilities, similar to most around the country, are not disconnecting customers for non-payment, and we are temporarily waiving late payment fees. Our state regulators are taking constructive steps to allow utilities to defer incremental bad debt expenses related to the pandemic for recovery in future rate proceedings.
In addition, our gas utilities are largely decoupled and many have bad debt mechanisms already in place, which help to insulate them from both sales and non-payment impacts. We also expect increased federal funding for programs like LIHEAP and certain provisions in the PPP program to assist eligible customers with bill payment. Between regulatory mechanisms and customer assistance programs, we believe bad debt expense impacts will be largely mitigated. Turning now to liquidity. Because of the actions we took in the first quarter, Southern's net liquidity at the end of March improved by $800 million relative to year-end 2019 and currently stands at over $7 billion. In the second quarter, we have already taken steps to further strengthen our liquidity position, including completion of a $1 billion issuance at the parent in April.
At this juncture, we believe we have ample liquidity for our capital investment plan, protect our dividend and weather potential COVID-related volatility in debt markets, as well as elevated periods of customer non-payment. With solid results through the first quarter, our current belief is that O&M reductions can largely offset pandemic-related sales impacts. With peak electric loads still to come, we see no reason to deviate from our current financial objectives. Consistent with historical practice, we will address earnings for the year relative to our EPS guidance after the third quarter. For the second quarter, we assume that pressure on retail sales will persist, though it is too early to predict with precision what the overall impact will be. Recognizing all of these factors, we are providing an adjusted EPS estimate for the second quarter of $0.65.
Before I turn it back to Tom, I'd like to give a brief update on some regulatory matters. In March, the Mississippi Public Service Commission unanimously approved the rate case settlement reached between Mississippi Power and the PSC staff, resulting in a rate decrease for customers and an increase in the allowed equity ratio for Mississippi Power of 55%. On the Vogtle front, we filed VCM 22 with the Georgia PSC in mid-February, requesting verification and approval of $674 million of spend for the period of July through December of 2019. We expect a decision from the PSC in August.
Before I turn it back to Tom, I'd like to thank our Southern family for an outstanding job during this period. Everyone has taken the new normal in stride and has remained focused on our customer at all levels. You've shown superior performance and total commitment, and for that, I'm thankful.
I hope everyone stays well, and with that, I'll turn it back to Tom.
Thanks, Drew. As our nation seeks a path to recovery from the coronavirus pandemic, at Southern Company, we are resolute in our commitment to provide clean, safe, reliable, and affordable energy for our customers. To ensure that we are actively supporting recovery efforts, Southern Company and our subsidiaries are engaged with policymakers at both the state and federal level as they make critical decisions about reopening our economies. Notably, Alabama Power CEO, Mark Crosswhite, and I were named as part of the President's Economic Revival Initiative. Along with the work that I do to help lead the Electricity Subsector Coordinating Council, the principal liaison between the federal government and the electric power industry, which has been heavily involved in pandemic recovery efforts, Southern Company continues its leadership at a national level.
Before we take your questions, I also want to highlight the extraordinary response of our teams after the recent severe storms. In April, we experienced two successive weekends of devastating tornadoes across our Southeast service territories that damaged or destroyed hundreds of homes and businesses. Our employees on the front lines worked tirelessly to restore service to the thousands of electric and natural gas customers that were affected by these storms. In the aggregate, we restored service to over 600,000 customers within 24 hours and proved our capacity to work under duress effectively with Coronavirus protocols. I am grateful for and extremely proud of the men and women of Southern Company who continue to work hard each day to deliver value to customers and shareholders during these extraordinary times.
In closing, the COVID-19 pandemic will undoubtedly have a lasting impact on the U.S. and global economies and on the communities we serve. Under what we currently view as a reasonable economic recovery scenario, we are positioning ourselves to mitigate potential financial impacts on our company through aggressive and thoughtful cost control. The next several months will be particularly instructive for Southern and our utilities as we monitor the pace of recovery, move into the warm summer season, and work to increase productivity at Vogtle Units 3 and 4. We expect our business will remain reliable and resilient over the long term, in keeping with our long history of delivering on our commitments to customers, employees, and shareholders. Thank you for joining us this afternoon. Operator, we are now ready to take questions.
Thank you. If you'd like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been asked by another and you would like to withdraw your registration, please press the one followed by the three. If using a speakerphone, please lift your handset before entering your request. Our first question comes from the line of Shar Pourreza with Guggenheim Partners`. Please proceed.
Hello, Shar.
Hey, guys.
How are you?
Good. How you doing?
Great.
Just a couple of questions here. First, just sort of thinking about some of the moving pieces. We're looking at COVID sales impact for a 2%-5% reduction versus prior guidance of flat to up 1%. Better than expected Q1, slightly weaker Q2 guidance versus, I guess, expectations, O&M levers. If we're assuming kind of normal weather, where do you see coming in within your earnings guidance range for the year? Just remind us, the sales growth figures for March and April on slide 11, are they weather normalized, especially with the recent storms in your jurisdictions? How do we extrapolate how much of that was weather versus COVID versus anything else?
With respect to the first question, when we set a guidance range, I think we broadly think that kind of the midpoint of the range is a place that without all these other impacts we do, that we would expect to land. I think we remain consistent with our financial objectives for the year. I will add, I know we received some conversation about should we reaffirm. Let me just hit that real quick.
It has never been our practice to reaffirm guidance in interim periods. We give you guidance at the end of the year. That would be late January, February. Once we get through our peak kind of earnings season, which would be the third quarter, that's when we give an update as to our guidance. We believe we're committed to hitting our financial objectives. Of course, there's uncertainty in front of us, and we run the same uncertainty everybody else does. With what we know right now, with reasonable impacts, we remain committed to everything that we've said so far. We're sticking with that. I think further evidence of that is the recent increase in dividends. Shar, what else did you want there?
Sorry, just the weather on slide 11, the impacts that you have from March through April, is that weather normalized and how much of it is impacted from COVID versus the recent storms?
That is weather normalized.
Okay.
We would think of it as virtually all COVID. Shar, I think I'd just address one other piece of your question related to our guidance for our estimate for second quarter.
Yeah.
Second quarter typically is a relatively light quarter for us in terms of total demand. You can imagine that there's a big difference between June's expectation and April's expectation. We also feel like this is the period where COVID-19 is going to have the greatest amount of impact across the retail customer base, whether it's residential, commercial, or industrial. Even though we are putting measures in place to reduce expenses, those will largely be levelized over the balance of the period, and you're looking at them adjusted to what is a very constrained quarter in terms of sales. I would just take it in that light. Also, if you look at last year, I think we reported $0.80 for the quarter. $0.08 of that at least was weather related. I think what we're putting out consistent with what we've already reported for the first quarter is.
Yeah, Drew, thanks for that. I actually went back over the last eight years and just looked at what did we estimate. Believe it or not, this is within the range of estimates. The kind of low was $0.65. In fact, I want to say in 2018, we estimated $0.65. When you consider you have the effect of the coronavirus impact, who knows? It seems like a reasonably conservative estimate from my standpoint. I'm okay with it.
Got it. Just on Vogtle, given the impact of COVID and the move to push the aggressive Unit 4 site plan back to May from March, I know in the past we've talked about being hopeful that we could see the units come online somewhere between the budgeted and the more aggressive timelines. Is that kind of not reality at this point? I know you will continue to keep that May aggressive schedule until there is zero probability it could be met. What probabilities are the site managers placing now on meeting the aggressive schedule? At what point could you move away from May to something closer to the midpoint between the aggressive and budgeted schedules? Thanks.
Yeah. Hey, Shar, let me pick at one of the predicates in your question, that was until there's zero probability. That's really not the case. We always kind of do a reasonable shot, we stick with that. Look, we have used some margin here. We had an extra month of kind of hidden margin between hot functional test and fuel load. Essentially, we have seen so far losing kind of 10 days- 14 days in the aggressive schedule. We think through May we'll lose another two weeks. The site people are going to work like crazy to mitigate the loss of that month. We had a month of, if you will, margin in between now and fuel load that we're just consuming. Is it riskier than it was before? Yeah. It's still a reasonable objective, otherwise we wouldn't stick with it. Okay? One last point.
When we go from in the schedule, from fuel load to in-service, recall we have maintained, and I know this has been a conversation in many earnings calls. We have maintained a six-month schedule there. China did it in four and a half months, and we think we can meet or beat China. We actually have a little more margin even to November and to May. Look, November is what matters. We got to beat November, and our eyes are on that. The site continues to believe they can hit a May schedule. Has it gotten more aggressive? Yeah. It still is a reasonable shot at it.
Got it. Congrats, guys, on the results, stay safe, we'll see you soon.
Sure. Thanks. Same to you, bud.
All right.
Thank you. Our next question comes from the line of Steve Fleishman with Wolfe Research. Please proceed.
Hey, Steve.
Hey, Tom. Good afternoon.
Good afternoon.
A couple questions. Has the workforce reduction been implemented now, and did it end up being around 20%?
Yes
Took that.
Yes
Plan? Okay.
Yes.
Is it okay? Maybe just give some color on, obviously there's different people doing different things there. Are there areas where you need to refill people for certain skills or just how did that play out?
Yeah, in general, what we were able to do is to bring people off of four onto three. That's how we filled whatever gaps we thought we may see. Recall, and this was in the 8-K, I think, the first reduction was voluntary, and then we moved to what we call right-sizing. The voluntary effort didn't produce an optimal kind of result for all the work phases that we have at the plant. Remember, as I said in the script and everything else, we're particularly concerned with getting the right mix and the right productivity in electrical and with subcontracts. What we did by moving resources away from four, we bolstered the mix on unit three so that we believe that there's a reasonable shot to maintain the aggressive schedule, which has a May in-service date. That really is what has happened.
The other thing I just want to put out is that we are in transition. In the script, I mentioned the idea about this sawtooth effect. We've seen that every time now, and those of you that follow these calls will remember that every time we open up a new workforce, a new work phase in the plant, every time we lead to an increase in personnel. Well, even with the decrease in personnel, as we remix crews and schedules and everything else, we believe that sawtooth effect will occur. That's why we're being reasonably conservative with May. In other words, we did 1.25% in April, which still beat the 1% that we need for November. May may be similarly challenged. We hope it's a little better, but don't be surprised if it's not that great.
We expect in June and beyond to really pick up the sawtooth effect and achieve what we want to do, as we have done in the past. When we've talked to you about this sawtooth effect in the past, in fact, it has occurred. Let us readjust, get the teams right, get the work practices back together, and then we think we'll get the performance we want to see.
Okay. When will we kind of get an update of how the Commission is kind of feeling about how Vogtle's going? Would that be in this VCM or really the next one? Are they going to do any special-
Yeah
Hearing on it?
Well, let me answer that a couple of ways, Steve. I know you're really good about this and others on the call are, in terms of contacting the commission directly or looking at all the filings and everything else. You have heard directly kind of from the commissioners themselves. I would never put words in their mouth. The other thing that I would just highlight to people is that Tuesday, so in just a few days, the company will be testifying, and you'll be able to see the interplay between the company and the staff and everybody else. We'll get some illumination there.
Okay. My last question is just on making sure I understand the assumptions for sales. When you talk about kind of startup later in the summer and then recovery, is recovery kind of off of this very low level now? When you're talking about recovery, what do you mean by that?
Steve, actually, can you hear me all right? We're having some technical difficulties as Tom and I socially distance. I hear you well. Good. Yeah. We're modeling a bunch of different things, whether it's a V, a U, a W, or an L. In general, the midline of our sort of 250- 400 is probably something like delayed reemergence from stay-at-home kind of through midsummer, maybe even until August, and then some recovery through the balance of the year, but certainly not complete. If we look at the different customer classes that we're tracking today, our industrial segment, which is not the largest contributor to earnings, by the way, is actually performing quite well, but it is varied.
Things like pulp and paper, some of the larger segments, chemical, are doing quite well because of low input costs or because of demand on product. Some of the things like precursors to automotive or light steel are going to take a little bit longer to rebound. Those industries, as we're watching, are starting to reopen, and automotive production is beginning to restart across Georgia and Alabama in particular. On the commercial side, we've seen a pretty exaggerated decrease. Some of our bigger customers there are certainly retail and education. Some of those segments are starting to move back. I think the two to five total that we gave you really represents those different actions in aggregate, but we're looking at it in a pretty detailed way.
I'll just add to that, too, just so everybody I think knows that Georgia is one of the states stepping out on reemerging. Of course, we're doing it in a thoughtful, phased process. The other issue that I would put out there is fuel prices are really low. For the quarter, natural gas was $1.88 per million BTU, and I think the amount of natural gas cost borne by customers was around a quarter of a billion dollars, $247 million lower than last year. Cost of electricity, and therefore consumption of energy, is more cost-efficient than it has been before. There's a lot in the mix right now. Also, I'll just say this. I've been in contact with my friend Jerome Powell from the Fed .
I would compliment, and I know there's all kinds of disagreement about this, but I would compliment broadly the federal response, whether it's the administration, whether it's Congress, whether it's the Fed , in terms of the timeliness of their response in supporting the economy, especially as compared to, say, 2008- 2009. These guys are on top of it, and I'm sure we could all criticize one step here or there. I think all the necessary chemicals are in the sea to produce something that will minimize, hopefully, the impact going forward.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please proceed.
Hey, Stephen. How are you?
Hi, good afternoon.
Good afternoon. Great.
I just wanted to follow up on the status of COVID at the Vogtle work site. You've taken steps to reduce risk. We're trying to sort of track the number of cases. Is there a risk of a trajectory of more cases such that you have to sort of adjust work practices at the site further, or do you feel that sort of the changes you've made have made the impacts to the number of cases that you were looking for?
No. In fact, look, we started very early on. Before there were any COVID-19 effects, we were planning that there would be. One of the very first things we did, I remember it was a weekend call of the executive team, was to move to the site essentially a medical village staffed by nurses and doctors. We have a disease specialist that's been advising the site daily. We have all the PPE we need. We have turnaround in testing, conservative work practices, and in fact, our realization, we've debated about talking about this on the call, but I'll throw a little bit of it out there. Our incidence rate compared to the utility industry is about half, maybe 40%, something like that. Our severity of cases is way lower.
One of the very smart steps that the site did very early on was to remove from the site, or at least on a voluntary basis with pay, people that would be most likely to be severely impacted. That is elderly or older. Like, I'm probably in that category. I don't want to describe myself as elderly. If they had a preexisting condition. If you look at it, one other thing we do that's very conservative that other people aren't doing, that is if somebody at the site just feels funny, if they don't feel well and want to get tested, we get them tested. Not only that, we take their work associates out that have the close contact, and we test them.
When you look at the amount of testing per person at the site relative to anywhere in the communities we serve, we are testing between five and 10 times more people than what's being tested elsewhere in the region. It's amazing stuff. Sometimes in these close contact cases, we will test somebody that is asymptomatic. Sure, they turned up positive. We remove them. The other kind of telling factor is severity. I think we've only had one or two people be hospitalized or go to a hospital. Otherwise, they're being tested with the folks on site. About half of the people that have been tested positive have returned to work. I think that's all pretty positive stuff. A couple more things that we're doing. At any work front, we limit the amount of people doing the social distancing to three per work site.
Sometimes we exceed that with everybody's approval, but that generally is the practice. We have eliminated close quarters break areas, close quarters lunch areas, the big busing, and all that stuff. We really have worked hard right away, early on, to make sure. The principle was that we wanted Plant Vogtle 3 and 4 to be a better environment for the workers there than what they could find elsewhere in their homes or in the communities in the surrounding area. I think we've done that.
That's really helpful color. Thank you very much. Just checking in on the status of just equipment testing on the site. Would you mind just giving a high-level update on, I guess maybe percentage of equipment tested or whatever else is most relevant as we think about just sort of overall status of testing all the equipment on site?
Well, all the major equipment is tested, right? I mean, right as we entered the call, we got the sign-off from Westinghouse. The open vessel testing, the testing was complete. Just as you yell at your children and teenagers, check your work before you turn it in. That's what we have been doing in the past just recent day, hours, whatever. In fact, we just got clearance from Westinghouse. In fact, they had verified that we had passed all the tests on OVT. We were very happy to announce that today. What else would you want to hear?
I think that makes sense. I think in the past, there was some sort of metric of percentage of equipment that's been inspected. I can follow up afterwards.
All the major equipment is there and has been tested. We'll test it again.
Okay.
Once it goes into a system, but we're done. Hey, one other thing, the RCP, right, is all on site, and everybody admires it as they walk by it. It's a spare. We got that from Summer.
Great. That's all I have. Thank you.
Thank you.
Thank you. Our next question comes from the line of Durgesh Chopra with Evercore ISI. Please proceed.
Thanks for joining us.
Thanks. Thanks, Tom. Thanks for taking my question. I want to take you back to 2008, 2009. You mentioned you were able to offset a lot of the impact there with cost cutting, but also, I believe it was George, and correct me if I'm wrong, but you were able to amortize some of the regulatory accounts to kind of mitigate the earnings hit there. Is that sort of an opportunity available this time around?
Boy, you've got a great memory, and you're correct. That is, in fact, what we did. We took some steps to lessen the burden. We don't feel the need to take those steps right now. Those are certainly options in the future to approach regulators if we need to. The one thing I think that you can just point to around the system is that I think we've received, in fact, I would just go broadly, our PSCs, but also I would say FERC and NERC at the national level. Folks have really, I think, bent over backwards to accommodate the needs of this unique environment. I think the issue of being able to set aside as a regulatory asset recovery of disconnect costs and a variety of other things has been another evidence of constructive practice by our state.
At the NERC and FERC level, I'll tell you, they've been on these ESCC calls. Likewise, they're doing what they need to do in order to help the industry get through this period, not by imposing over-regulations, et cetera. I'm very complimentary of what are generally very tough regulators taking constructive approaches to help in assisting through this timeframe.
Got it. Thanks, Tom. Maybe just shifting gears. Can you talk a little bit about the credit metrics, and you're really confident in your 2020 EPS numbers, but I'm just kind of curious as to what impact, if any, are you seeing or you expect to see on your FFO to debt versus the targets and any color on any dialogue you may have had with the credit rating agencies?
This is Drew. I would say that we've had numerous conversations with the credit rating agencies across a variety of topics and did a very fulsome review of each of those individual business units not four weeks ago. While we're meeting targets, FFO to debt doesn't change much. Our goal is to sort of stay with a buffer relevant to what's expected for the ratings categories that we maintain. Generally, as we get through the construction of Vogtle, they're on an improving trajectory, which is a function really of just how the economics work of Vogtle. The other thing that we've been working through is general liquidity, which we think is paramount to operating a well-functioning business.
We were fortunate to be a good credit in reasonable markets, and we accelerated all of the debt issuance that we needed to do for the balance of the year, at least put ourselves in a position to not have to face those challenges later on. I think, very comfortable with how we're managing liquidity and credit in total.
Yeah. Drew, I'm just going to ask you if you're comfortable saying something here, but our relationship with not only our regulators, but also the rating agencies, et cetera, is continuous, not discrete. Just recently, you went through a pretty intensive review by the rating agencies. What can you say about their response to that?
Just as you would expect, probably very similar to 2008 and 2009, they have sectors that they worry about far more than a utility. I think what they're focused on are the constructive and proactive nature of regulators and the behaviors that we've seen insulating us from things like bad debt expense, I think is a very protective and productive thing. In general, the rating agencies are still concerned with the same things they were concerned with before, but I think certainly our sector is less of a concern than most others.
I think we got a favorable review from them.
Yeah.
Okay, perfect guys. Really appreciate you taking the time to answer our questions today. Thank you very much.
Yes, sir. Thank you.
Thank you. Our next question comes from the line of Sophie Karp with KeyBank. Please proceed.
Hello, Sophie.
Hi. Good afternoon. Congrats on a solid quarter, and thank you for squeezing me in here.
Absolutely.
Yeah. A lot of the questions have been kind of asked and answered, but maybe if I can just follow up on a couple of points here. Firstly on Vogtle, all right, you mentioned that you reduced the size of teams to three people, I think you said, and the overall workforce by 20%. Is that based on kind of CDC guidelines or your internal guidelines that you've developed? When may you go back to larger teams or reduce this? Obviously it would be fair to say, I believe that this is causing some productivity declines, right? Is that sort of a new normal through the duration of the project in your mind, or are we going to go back to more normal staffing at some point?
Yeah. Sophie, that's a great question. If you recall, I think we've done this in the past, kind of CapEx by quarter. We've shown these curves. We're kind of at the peak of our curve. Assuming that we continue to be productive, the curve actually starts to turn down on unit three. It'll ramp up a little bit more on unit four going forward. My sense is we're going to evaluate our progress in the months ahead. It could be that this level of activity is appropriate for where we want to be on unit three and four. We were on the downturn of activity at unit three, just right there. Dropping the whole site from nine to seven isn't exactly unexpected. It's a little accelerated, which means that we're probably going to push out some hours.
It's not unexpected and we didn't intend it when we re-snapped the schedule, the refinement we did in February. Accelerating for those two months gave us essentially a bank of more margin, that we're able to use in moving people from four to three to accommodate the difference in the resizing after this voluntary reduction. It's actually not a bad place to be. Let's see what happens in the months ahead.
Got it. My other question was on bad debt expense, right? We're pretty early, I guess, in this as far as billing cycles go. Is there a point where it might be an issue for the balance sheet where you might want to approach your regulators to maybe recover it before the next rate case cycle, which is some time away. I guess, how do you think about it internally? What is the threshold, if any?
Sophie, this is Drew. I'd say a number of things. In general, our gas utilities have riders or trackers for these types of things, and so our exposures were probably more isolated to the electric utilities. We've had very constructive regulatory conversations and in fact, not so much a mechanism, but at least an understanding that bad debt expense would track through a regulatory asset that we could recover when we get together next to discuss rates. Your question, I think, was around the interim period. To be honest, bad debt expense is not one of the things that I fear. It's a relatively low percentage of our total revenue. The thing that we're tracking really is sort of late payment of bills, and so we've been monitoring the number of customers in arrears.
It has not changed materially over the last month. We typically have about 15% of our customers in arrears at any given time, maybe more of a normal time. We know that if we were to have to provision to something like a 40% of our customers being in arrears, that we would probably have to provision somewhere between $800 and $1 billion worth of additional capital per quarter. All of that is incredibly manageable within the existing liquidity that we have within the business. We don't anticipate that there'll be anything more than maybe some temporary impact to liquidity, but really no long-term impact to bad debt.
Let me add another comment. It's under the who knows, I think it's still something we've talked about getting ready for the call. That is, when you think about the intensive impact of COVID-19, it's occurring during light revenue months for us. It's occurring during April and May, which are not strong months. This is Atlanta particularly, but the Southeast is known for these beautiful long springs. Our big revenue months, 60% of our revenue, I think, comes out of the summer. When you think about the intense impact, it's coming during low revenue, and therefore, if we have some recovery, that's the who knows part, that'll get us back to, I think, a good spot. Hey, Sophie, one more thing you mentioned, somebody pointed out to me that I didn't cover. You said, do we follow CDC guidelines? In fact, yes, we do.
In fact, I think we're even more conservative than CDC in terms of recovery and all that stuff. We keep people out 14 days, even if they've been around somebody that's been tested. A variety of other things.
Got it. Thank you.
Yeah, just one last thing. We do survey. We do stay in touch with the other mega projects around the U.S., and their experience is not that different than ours. I think 95% are still progressing kind of as we are.
Great. Thank you.
Thank you.
Thank you. Our next question comes from the line of Michael Weinstein with Credit Suisse. Please proceed.
Hey, Tom. How you doing?
How are you doing?
All right.
Good.
Hey, on residential sales, looks like your forecast is about 1%-3% up, and it looks a little bit light as a forecast for up compared to what I've been hearing from other utilities on the range of 3%-4% for residential sales. Is there something about residential sales that you expect to be a little more, I guess, not as enthusiastic about it being an offsetting factor?
No, Michael, I think probably what you're noting may be a difference in time period, where the 2%-3% that we've got on our chart on slide 11 really is meant to represent what we think the full-year impacts might be. We certainly are seeing across all of these classes, commercial, industrial, and residential, a more exaggerated response than what's depicted here. What we're trying to show is just that this is what we think the full-year impact would be given the point in time or the point in the heating and cooling cycle where we are today. As Tom said, April is sort of an interesting month in Georgia as people are starting to change over from heating into air conditioning, demand is quite light. What we expect in May is a fraction of what we expect in June.
August and September here are crazy.
Right. Hey, on Vogtle, where are the fuel assemblies being manufactured, and where are they right now? Are there any issues on the sites with the manufacturing?
Where are they manufactured? You're breaking up. Did you say, where is the fuel manufactured?
Yeah.
South Carolina.
Where are the assemblies being manufactured? Yeah.
Yeah, I'm sorry, you're breaking up.
Are there any issues on those sites?
I'm sorry, you're really breaking up. What we hear is where is the fuel manufactured, and it's South Carolina.
Are there any issues on site for the manufacturing process?
Is there any fuel on site? No.
There's not any issues with assembly. None that we're aware of.
No.
Got you. Okay. Thank you.
Yeah, Michael, thank you. If we missed your question there, please call us after, and we'll be glad to hit it for you. You were just breaking up a lot.
No. Thank you.
Yes, sir. Thank you.
Thank you. Our next question comes from the line of Jeremy Tonet with JP Morgan. Please proceed.
Hello, Jeremy. How are you?
Good afternoon. Thanks for having me.
You bet.
I wanted to come back to Vogtle here a little bit, if I could. With the lower Vogtle workforce, I was just wondering what type of working hours per week are you guys achieving now? What levels would have a concern with regards to the schedule? Ask differently, what type of working hour numbers do you guys need to see to hit that monthly completion rate of about 1%?
Yeah, I think we're around five tens. We don't do as many weekends as we have, so we've backed off a little bit. That gives us a little bit of optionality should we need to work weekends. We've backed off a little bit during this timeframe and less density and everything else. Further, we have shifted more work into the daylight hours as opposed to the night shift.
Okay.
We have shifted more hours onto unit 3. That's kind of the broad approach there.
That's helpful there. Thanks. Just wanted to shift gears, I guess, to load and appreciate that it might be just well too early to tell, but it seems like Georgia's recently started to reopen a bit here. With that process started, just wondering if you could share anything you're seeing with us live-time, and was that able to inform your load projections that you provided early on the call?
Well, look, we're in contact with our key account customers. I think we always do a pretty good job there. Let's let the estimates stay where the estimates are. You asked a little bit of a different question, kind of what's our pulse of the community. I think there is a positive vibe right now, that people are trying to figure out ways to start again. The restaurants are doing all this takeout. It feels a little better. Drew lives in a different part. He lives right in the heart of the city. I live in the burbs. What's your experience?
Well, another way to sort of think about this is we have real-time data on actual usage, and then as you described, Tom, we have forward polling of all of our commercial and industrial customers. I would say that the fact that the governor has opened the state has not changed human behavior materially, but I would say that in general, as we poll commercial customers in particular, confidence around coming back as load has improved in the last couple of weeks, the last set of data that I saw out of Georgia in particular. These are just sort of early shoots kinds of signs, and we'll have to look at what its actual demand is. We certainly have some categories where we don't expect any immediate improvement. Education is one of our top commercial segments, and we don't anticipate people being back in school for this season.
There is other loads like hospital where they've exceeded historical consumption. That's to be expected. I'd just give us a few more quarters and a few more months and we'll be able to give you a little bit better data.
Drew, you reminded me, too. I think you guys would find this interesting. Drew is on the board, probably half the hospital beds in the state here, in Georgia anyway, and his wife is a doctor. Give a sense as to how many of the beds are being used because this is kind of this capacity flatten the curve concept.
Yeah. Tom, I probably have to stay away from absolute numbers, and I prefer that some of these institutions report for themselves. I would just say that I am intimate with the functioning of Emory and Grady, the sort of safety net hospital and our academic institutions in town. I'm incredibly amazed at their ability to ramp to an expected demand. In general, I think that we're seeing cases in those hospitals that are a little bit lighter than models would have projected. The ability of those hospitals to grasp what could be before them and to accommodate what could be a crush there has been really incredible. Very sophisticated set of institutions in our area.
We have 100% more capacity than what we're seeing in terms of actual cases right now. When you think about coming back to work, there's a whole lot of gating issues that we've been working on, I've been working on at a national level in the industry and here at Southern. One of the big indicators is have we flattened the curve? Do you have capacity? Yes. The fact is, and I think it's been very instructive at Vogtle, that we have to learn to work with the virus. We have to learn for American commerce to get along because the only way you can be assured you don't have the virus is to have widespread available vaccines, and we don't have that yet. Until we get there, you won't have complete recovery. How do you act? How are you able to persist in this environment?
I think that's why, who knows, but I think that's why Governor Kemp, that was one of the issues he was looking at. Do we have available capacity? Yes. The next question we will all have as a nation is do we have a second wave later this fall? We'll see.
That's really helpful. Thank you for taking my question.
Yeah, you bet. Thank you.
Thank you. Our next question comes from the line of Paul Fremont with Mizuho Securities. Please proceed.
Hello, Paul. Glad to have you with us.
Hey. Great to be here. Hope you're all safe and healthy.
You. Yeah, we're great.
You had initially planned turnover and testing to occur simultaneous with construction. Is that still the plan, and does COVID-19 complicate this due to the small footprint of the plant?
Turnover and testing and construction have been going hand in glove along the way. We get thorough reports. I know we do thorough reports once a month with everybody at the PSC, and the co-owners and everything else. That's going according to pace, sometimes you speed up testing. Remember we got into a discussion about that in past calls. Sometimes you slow it down, letting construction catch up, or you test in other areas of the plant while you focus on construction in a particular area. All that's going as expected. I wouldn't say that's anything other than exactly what we've expected. I think this approach has really served us well. We've talked about that in the past, fail fast and learn in other areas has been really helpful to us.
Secondly, can you update us on how many final approvals you've had from the NRC on ITAACs? Are you going to have to wait until construction is fully complete for a lot of the remaining ITAACs to be signed off on, or how should we think about the timeframe for that?
Yeah. Let me just give you quick numbers. The ITAACs that have been submitted, all the UINs, this is the ITAACs that have been submitted in form without the number, have been accepted by the NRC. Every one of those. That really lessened the bow wave that we have. We had originally, I think, 449 ITAACs fully that need to be submitted for Unit 3. We've had a whole lot of those complete. I guess we still have about 270 left before they're certified. We get the clearance to load fuel. That's been going well. The NRC, I think is-
For the-
Let me just top up. Yeah, go ahead, Paul.
I was going to just ask, for the 270 to be approved, do you essentially have to wait until construction is complete, or are you expecting that to happen earlier?
It's a pace along the way. There is some elements of the 270 that are after construction. We think ITACs are going well. We're either ahead of schedule or whatever. Paul, you may remember, I used to say that ITACs would reach my top three of concerns. While we're concerned about everything, I think electrical work and subcontract work are much bigger concerns at this point than our ability to deliver on ITACs. I really think those guys have done great, and I want to throw a bouquet to the NRC. They have staffed up appropriately, and the teams that have been charged with approving the UINs and the ITACs that are fully complete have done a very timely job of doing that.
I personally have worked with Steve Kuczynski and team, visiting with the NRC commissioners, and they are committed to holding up their end of the bargain. I feel good. It's still a big issue. Let me not minimize it, but it's something I feel pretty good about.
Tom, I think the only thing that I'd add is we've tried to emphasize with folks is that testing and turnover occurs constantly.
Yeah.
The best indicator that we're making progress on testing and turnover are the actual starts of the milestones themselves. You'll see a couple of those milestones and our progress against them this summer, and that's the best indicator you can have of successful testing and turnover.
It's just been following. I forget. We do these variety of these town halls. I did one with Shar recently and some time ago with Fleishman. Sure enough, back then I said end of the month. Well, we finished OVT end of the month. We're able to follow through on the schedule despite the challenges of COVID.
After implementing the 20% workforce reduction, are you anticipating a significant improvement in productivity at the plant?
Yeah. Oh, yeah. You just got to remember the sawtooth discussion we've had before. Anytime we staff up or now staff down and we have to right size and bring new people on and getting used to a new work front and new people working together and new supervision, there always is a bit of a learning curve. That's a sawtooth. Yeah, we are expecting an improvement. Let me point out again, we have been ahead. I think this chart on slide seven really shows it. Even with April, it's just a slight downtick from our aggressive schedule, and I think pretty far away from November. Even during April, we completed 1.25%. Target was two. The November schedule calls for one. We even made some margin to November, even during a bad month.
My last question, looking sort of at your slide 11, with respect to potential cost reduction.
Sure
Where in relation to the $250 million-$400 million of potential revenue erosion, where would you see the ability to sort of offset that with O&M? Towards the lower end, the middle, the high end? How should we think about that?
Well, I think we're going to have to see how this quarter goes, but we're going to put plans in place that would at least give us bookends to achieve at either end of the spectrum, is the simple way to describe it to you. There are certainly costs that we will categorize that are things where you reduce the absolute on-the-run expense of them. Travel in particular is a perfect example. With a workforce of nearly 30,000 people, very few people were traveling for a number of months. We don't expect that that creates a backlog of travel that will then come back into our cost stream. There will be things toward the far end of the spectrum where we will be delaying expenses into future periods.
We're just going through an effort to identify in both of those categories and across this entire spectrum of potential revenue declines, how we might function with either of these outcomes.
As a principle, we're not refilling open jobs.
Yeah
Without CEO approval, which really freezes them. It has the effect of a freeze. Yeah.
Are there examples of past years where you've gone through cost reduction and any numbers that you can share based on past experience?
Yeah. Go ahead.
In 2008 and 2009, I think the number was probably a little bit toward the lower end of this range. I think a pretty good indication of what the capabilities are. Understanding in 2008 and 2009, the company was a bit smaller, so the acquisition of AGL Resources came in hence, and so our cost complex is quite a bit larger than this. Our total O&M is something in the $5+ billion range, maybe addressable is a little bit smaller than that. I think it gives us plenty of room to be responsible around this range.
Yeah.
Great. Thank you.
Yes, sir. Thank you.
Thank you. Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed.
Hey, Michael, how are you?
I'm well, Tom. How are you? Glad to hear.
Great
Everybody in the Southern Company family is doing as well as possible. Thank you for taking the question. I actually want to ask you about the jurisdiction that people don't ask you about that may be one of the best ones people don't think about enough. Can you talk about Alabama? Can you talk about both where things stand with the approval of both the gas plants and the solar, both the PPAs and ownership that you all filed at the PSC? Also, I thought there was a rate docket there this year as well, undergoing in the winter and into the spring. Can you just give us an update on that? Then finally, how different is Alabama demand trends relative to Georgia ones?
Yeah, I would say in general, you're in a giant process that's on track in Georgia for all that stuff.
Alabama.
I'm sorry, in Alabama. Yeah, I think everything is going as we thought it would there.
Yeah. Your question around customer mix, just like in the entirety of our jurisdictions, it tends to move toward more industrial as you move west, generally.
What's interesting in Mississippi, 25% of Mississippi sales are wholesale, and those wholesale sales are largely residential. You get a bit of a different mix in Mississippi, but it's small. Drew's exactly right. Alabama and Georgia are pretty similar.
Okay. Can you remind us in Alabama what the rate request was and also what the timeline to get approval for the gas plant, both acquisition and development?
I think we were looking towards June, weren't we? Or early summer for that process to occur.
Got it. Okay.
I think the only other piece of news there, it's not Alabama PSC news, but the FERC did approve the gas plant acquisition that we projected early summer. We got that out of the way.
Got it. Thank you, Tom. Much appreciated.
Thank you, my friend.
Thank you. Our next question comes from the line of Julien Dumoulin-Smith with Bank of America. Please proceed.
Hello, Julien. How are you?
Hey.
Hey.
Howdy, guys. Thank you very much. Hope you're well. Listen, just wanted to follow up on the O&M front. You guys have this range of retail revenue, right? I just wanted to be very clear about this. When you think about the cost-saving effort, just to quantify this a little bit more, basically, you're saying that you can offset anything in that range, or how do you think about the magnitude of cost savings that you're contemplating today? You're looking at this as $250-$400 as that's the equivalent O&M amount that you're looking at in your planning here?
Yeah. No, I think the simple way to think about it is that we're going to put plans in place or work through plans that can help us at either end of this range. What we actually have to execute against is going to be determined by how quickly the economies respond in our service territories.
The other thing I would just say, that's a range that's here again. I hate to say with all this uncertainty, it's kind of a who knows, but I think earlier, maybe a month ago, I was saying $250-$350. We tacked on $50 million just out of conservatism and a more prolonged kind of effect.
I don't want to give you the impression, Julien, that this is a limitless pool. There are certainly limitations, we're just going to have to see how the demand response evolves over time.
There again, too, that would reflect even at the highest ends, we're still within the range.
Yeah. Probably most folks don't know the easiest way to turn this into earnings per share is that we generally are about $10 million per $0.01. You can divide this by 10 and get some sense of the range of impact in total on a gross revenue basis and then adjust it.
Yeah.
That's for pre-tax.
You need to tax affect that. Drew just gave you an after-tax net income effect. This is pre-tax.
Yeah. Understood. All right. Let me come back to the start, perhaps, of the call. When you guys talked about the sawtooth dynamic, 20% reduction here in workforce, how are you thinking about making that up, Drew, on the project? You also talked about delaying the unit 4 a little bit here. Are you thinking that you're going to need to ramp back up labor later in the schedule here at this point? How do you make up for that 20% workforce reduction cumulatively?
Yeah. Thanks, Julien. I wish I could draw with my finger here in the air, but if we were doing a one-on-one, I'd draw my little piece of paper, my handwritten things I'm so famous for there. Just imagine this, if I had a curve that showed 9,000 people on site, as we wind down Unit 3 construction heading into hot functional testing, the wind down of people on site for Unit 3 occurs. The curve actually goes down. What we're doing is, and what we've said about kind of hot functional testing being kind of now August, September, all we did was push it out a little. Imagine you pushed your hand down on the peak of 9,000, and it pushes out a little bit to the right. All we've done is tried to maintain that level.
I don't think you're going to see another big peak here. We were already at the peak, and I think now that peak starts to wind down. That's why we feel comfortable with the movement from nine to 7,000 on site, drawing some off of unit 4, which pushes unit 4 back to its original schedule, and still maintaining our ability to hit the aggressive site plan for unit 3. All we did was shift the curve a little bit, and we funded that curve with unit 4.
Got it. Okay. Maybe just a quick follow-up here to round it out here. Under what scenarios would you consider stopping construction around COVID? It sounds like you guys have a lot of mitigating factors already implemented, a lot of compartmentalization of labor already going on in terms of mitigating factors. How do you think about what that scenario might look like, and when you might trigger that, just to address the range of scenarios here?
Yeah. You know what? I suppose there is a hypothetical in there. Julien, I just don't think that's likely. I think America, let me just speak broadly and I'll take it down to the site. America has to learn to live with the virus. Our experience so far, knock on wood, has been much less than what you've seen in the industry, about half, and our experience on site, likewise, has been less severe. I think largely because of the smart actions the people on the site have taken. For example, removing the at-risk personnel and paying them well before we saw the effects on the site. People are now coming back to work.
One other point is it looks like the average over the past, I don't know, four weeks, if you do a four-week look and average, it looks as if we may be past the peak on the site. That'll only be borne out in the next few weeks to come. If you do a seven-day rolling average, it looks as if incidence levels are decreasing. There's a hypothetical in there. I really think as a practical matter that the job at hand is continue the good work we're doing on-site, make that an attractive place for people to work, which I think we're doing. I think the labor unions et al are calling us out for that kind of unprecedented response, and keep going. I just don't think, I don't see it right now, but we'll see.
Excellent. All right. Yeah. You can tell by your confidence. Excellent. Well, thank you for the time. All the best.
Thank you, Julien. Appreciate it, bud.
Thank you. Our next question comes from the line of Andrew Weisel with Scotiabank Howard Weil. Please proceed.
Hello, Andrew. Thanks for joining us.
Hey, everyone. In the interest of time, I'll stick to one question here on page 11. I'm a little surprised, maybe I missed this, I apologize if I did, you're forecasting a bigger decline for commercial volumes than industrial. Most other utilities are talking about it the other way, I know you mentioned your mix is roughly a third, a third, a third. Can you explain why you're expecting a deeper hit to commercial than industrial?
Yeah, look, the good news there is if that's where your big hit is, I think your ability to come back is much better. It'll come back quicker. Your ability to shut down a plant and then get it back is harder than restarting a restaurant. In fact, I was on CNBC this morning, and I know right after me was the CEO of IMAX. He says, "Our ability to turn theaters back on is almost instantaneous." Look, that is an assessment of our key accounts and our marketing teams across the system. That's just what we see. Our industrial makeup, the kind of folks that we see, really have been having a great quarter. In fact, if you look at the month-by-month sales at industrial, gosh, our momentum statistics I'm fond of mentioning, were showing really quite positive momentum through February.
It's just with COVID-19, what we saw were some companies taking outages. They said, "Well, if we're going to want to socially distance, why don't we go ahead and take an outage and do some maintenance," sending a lot of people home. We actually think industrial will recover faster, more resilient. The other thing that we have in the Southeast here is industrial dependent upon natural gas as a feedstock, particularly in the chemicals area. I think that's our number one industrial customer. With natural gas being where it is, those guys are producing product at really attractive levels.
We saw this again in 2008 and 2009, and especially, I would say Alabama has been particularly proactive in putting in place rate plans that preserved industrial load, where across the United States, they didn't have those things, and industrials tended to shut down plants in other parts of the United States and move their productive capacity to the Southeast. For all those reasons, that's why we think industrial is more resilient than commercial. Good news is commercial's going to recover pretty quickly, in my opinion.
Okay, thank you. Be back.
Thank you. Our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed.
Hey, Paul. Glad to have you with us.
How you doing? Sounds like you guys are doing well.
Yeah. We're hanging in there.
What I wanted to touch base with you on was your economic forecast. It sounds like you guys are quite optimistic that once the stay-at-home and the social distancing stuff is resolved, people will be coming back, and it'll be business as usual. Is that the case? What is your economic forecast, given your growth rate? Are you still expecting 1% sales growth after this year?
The $400 million estimate assumes that there's more of a through-the-year impact.
Yeah, I don't know that we want to portray too much optimism. Certainly, a U-shape, it feels better where we're sitting today than it did maybe on the downward slope of it a couple of weeks ago.
Yeah.
Our projection for a 5% reduction in total retail sales is quite exaggerated relative to what we've seen in history. This will not be without economic pain for sure. We do think that our economies generally in the Southeast benefit from the fact that we've got good in-migration, and it's a good place to do business. Long term, relative to others, we think that we've got a pretty decent economic climate. The amount of time it takes to get back to normal, though, is inestimable.
Yeah. There is lots of degrees of freedom in all this. It's just our most reasonable guess at this point. I know, and my heart goes out to most of you guys on the phone that live in the New York area. You know I'm from New Jersey. We all have relatives and people that have been impacted by this, so we're very mindful of the grave circumstance. That's not the case down here. At least we haven't seen it. It's much less severe in the Southeast than what you're experiencing up there.
Okay. Just to sort of make sure I understand this, granted you guys see a hit this year, it sounds like, beginning of next year or pretty soon thereafter, you expect in terms of your earnings guidance and everything, your long-term growth rate, that essentially that the global pandemic will not have that meaningful an impact on economic activity in your region. Am I right about that?
Yeah. Okay. Now I'm sorry, that's a different question, and it's interesting. Will there be destruction in the economy as a result of the COVID-19 deal? That may be. My sense is the U.S. is in a pretty good position relative to global economies with respect to this issue. We'll see. In other words, is there going to be less demand from Europe for American products? What about China? One of the other impacts that we've been talking about at a federal level on this return to work is revitalizing the supply chain to the U.S., making us a little less dependent, particularly on critical infrastructure, for reliance on foreign economies. Still sitting there in Congress is an infrastructure bill.
My sense is there's more energy, excuse the pun, behind future legislative initiatives that could overcome some continuing sustaining impacts of destruction in the economy. Some other things could emerge. My sense is right now, if I just sit here and think about 2021 and 2022, there may be some continuing impacts. At this point, I don't think they're at all significant to the point where we would change our forward guidance on a 4%-6% EPS growth rate.
Okay. Fair enough.
Recall that the dominant issue for us is getting Vogtle built.
Yep.
Once we clear unit three and unit four to service, the rate of increase because of the earnings rates inside the construction period recover to a full return on capital. It is hard to beat that down.
Okay. On Vogtle, just sort of quickly here. It looks like you guys are, if I'm correct, that I've been estimating, it looks like for the people that you've been testing, and I think it's up into the 400 range now or something. It looks to me from the reports I'm seeing that it's remarkably pretty consistent at 28%-30% or something. I'm just wondering, obviously, there are a lot more people than that working at the site. Is there any thought about doing antibody testing, or are you guys thinking anything about herd immunity or anything like that? Is it just basically sort of people who come in and say, "Hey, I don't feel well. Give me a test," kind of thing?
We got early availability on the best test we could get at the time. The antibody tests are really pretty interesting. We're talking about that at a national level. We have had Admiral Giroir from HHS, he's the Director of Health, and he kind of has the whole testing regime in place. That's something that's attractive, but it's just not available right now. We can test all over the place, and in fact, you can test everybody, and they go home, and you'll have to retest them the next day, and the next day, and the next day. Testing is really valuable, and I don't underestimate it, but it doesn't solve the problem. Until we get a vaccine in place, we're going to be having to live with this environment in the nation.
Okay. Just really quickly on the sales numbers. They're not adjusted out for leap year. Is that correct, for the quarter?
I think they are not adjusted.
Okay. That's it for me. I really appreciate it. Thanks so much.
Thank you. Appreciate you joining us.
Thanks, Paul.
Thank you. Our next question comes from the line of Charles Fishman with Morningstar. Please proceed with your question.
Hey, Charles.
Thank you. Hi. Just one question. You got a $40 billion five-year CapEx program. The bulk of it is not Vogtle. You've given us great detail on Vogtle. You had a statement, no expected supply chain problems, disruptions. I get that. What is causing you some concern within the supply chain? Is there something that's going to be more expensive in that CapEx? Is there something maybe you've pushed out a year or two that you'll still get done within the five years, but plan? Any additional color on that no expected supply chain disruption comment would be appreciated.
Yeah. We're the size of the nation of Australia in round numbers. I get that statistic. We're a little bit smaller, but when you think about energy production, we're kind of in that league. We have long-standing relationships, and we are considered a high-priority customer with a variety of resources. When I say we don't see any problems in the long run, that doesn't mean people aren't working really hard to make sure that they understand what the perturbations may be and what they're going to do to resource them. We have been seeing some challenges, but we've always been able to overcome the challenges. I want to say, Drew, we have about at least a six-month kind of forward window where we're absolutely confident of no problems. That's kind of our safety margin, if you will.
You think about the nature of our CapEx budget, however, it is really tied up in making our system more resilient from a transmission and distribution standpoint. It is tied up in future generation, whether it is renewables or some of the new generation required in Alabama and Georgia. It is tied up in environmental matters, particularly for us, ash ponds, which I think is $10 billion over 10 years in round numbers. It is stuff that I think we've got great visibility into the availability of the equipment required to support that program. It's not subject to, I guess Drew uses the word smalls. We have a lot of visibility, and we're a big customer, and people generally work very hard to meet our needs. We have pushed on this a lot.
We've got a great guy, Jeff Franklin, that runs our supply chain for the system. We don't see a problem right now.
Yeah, I'd say labor is a large component of our total CapEx plan. As you said, environmental remediation at ash pond isn't really reliant on technology in general. We've got enough material for a pretty decent work front for a good period of time and expect in the long term, supply chains will replenish to meet whatever need we might have enough.
Let me throw one more factor out there, throw another bouquet at somebody. The Director of CISA in Homeland Security is a guy named Chris Krebs. He's doing a terrific job within the confines of his responsibility in calling out, my word, they put out an advisory bulletin of essential functions in America. Of course, Health and Human Services is right at the top right now. Right behind that is the electricity function in America. That's also a part of the recommendations by NIAC, National Infrastructure Advisory Council, and also the work product of the Cyberspace Solarium Commission that I'm on. Look, people will put a high priority on making sure that our needs are met. One last point. We have a terrific relationship with our valued partners in the labor market.
The U.S. building trades have done a hell of a job making sure that the people are there. I think we work very hard to make sure that they are valued partners and treated as well as anybody treats them in the United States. They are strategic partners for decades, and we treat them like that. I think the labor will be there when we need it.
Okay. Tom, thank you for the extra long call on extraordinary times. That was it.
Yeah. Thank you. No, we appreciate your attention.
Thank you. Our last question comes from the line of Ashar Khan with Verition. Please proceed.
Hello, Ashar. Always glad to have you with us.
Great, Tom. The progress is, I would say, exceptional and really very well you guys are doing. Can I just ask, I didn't want to ask the question, but I thought because of Regulation FD and because of disclosures and less contact. Usually, you have earned around $0.80 for the last 4 years in the second quarter, except for one year, 2017, where we had $0.05 or $0.06 of dilution, which hurt that quarter. Even then, we earned $0.73. Can you just ascribe to me why the pattern of earnings is going to go from the average $0.80- $0.65 in the second quarter? What is it making it an abnormal second quarter versus the prior trajectory of how the earnings have come up?
Yeah, Ashar. Actually, I went deeper in preparing for this for the call, but like I said, I have in front of me the data last eight years. Our low was $0.66, so we had three years in the 60s, $0.66, $0.69, $0.68, $0.71, $0.73, $0.75, and only the last two years have been $0.80. All we're doing is taking a conservative shot at what this second quarter COVID-19 thing is. It's always a fight. I always laugh. I used to be CFO, and I had to always extract an estimate from the system CFOs. The inside joke inside Southern is when the CFOs report what they think, they always have a conservative bias, and the joke is that the positive variances are always temporary, and the negative variances are permanent. We always have to fight through what the right answer is.
I think Drew's done a great job. I can't say that $0.65 is light. I'll just say that it's reasonable. There's a lot of degrees of freedom of conservatism around what's going to happen with COVID-19. We'll see. That's the data. I got the data right in front of me.
Ashar, it is fair to say that this quarter will have most, hopefully, the largest COVID-19 impact of any quarter that we'll experience. That's the hope and that's the expectation. If we're going to reduce our expense structure, and as Tom said, that's generally through halting adding additional headcount, which was part of our plan. That is something that will reduce expenses over the course of the year and not be isolated to the second quarter. We have to plan for a light revenue in second and less expense mitigation than we think we can achieve over the balance of the year.
We're still committed to our financial objectives for the year.
Thank you.
Well, I wouldn't get excited about the second quarter. We're still committed for the year.
Okay. Thank you.
Boy, Ashar, we had a good first quarter.
I know you did. Excellent quarter.
Yeah. good start. Operator, anything else?
That will conclude today's question and answer session. Sir, are there any closing remarks?
Drew, you want to lead us off?
I'd just say thank you to all the folks that are working hard on behalf of customers every day. I think we're living our core values, and I'm impressed that with 15,000 or 17,000 people working from home, we're getting the job done. Thank you very much to all the work teams that are working hard to have such a great outcome for us.
From my perspective, working at a national level, whether it's thinking about Homeland Security with Chris Krebs and his team, Department of Energy, Secretary Dan Brouillette, all of his team is doing a terrific job. The industry is responding exceedingly well, you should know that the industry, in this case, is a union of the investor-owned utilities and the cooperatives and the municipal. We are all working together to solve the problems as they arise. In fact, the favorite Gretzky saying of, "Skate to where the puck will be," I think this industry is way beyond reacting to the present and really into thinking about the future. We're very mindful that hurricane season, storm season is ahead of us, and being able to demonstrate as we have for decades, effective mutual response to the problems that will arise this year.
I think the industry is doing a terrific job. Kudos to all of my brothers and sisters out there. Finally for Southern, what a great start to the year. That's given us some tailwind, I think, to address some of these things. There is a lot of uncertainty ahead. I'm very encouraged with the team at Vogtle. When you look at the data, I think they're managing these unexpected conditions in an exceedingly prudent manner. The rest of the system is going great with their ability to respond to the storms and still serve customers well with this coronavirus protocol in place. I'm just very encouraged about our ability to deal with whatever comes our way for the rest of the year. That's why we remain committed. I want to thank you all.
I know, especially those of you all in the Northeast, you know I'm from New Jersey. I got relatives up there. I know you guys are dealing with some very tough times. I know maybe your families or maybe friends of families are all being impacted. Our thoughts and prayers go out to you all, and I think working together, we're going to get through this thing. Thanks to everybody for being with us today. I know it was an extra-long call, but I hope we gave enough color around not only Southern's situation but the national situation to give everybody confidence in the next steps forward. Thanks, everybody. Talk to you soon. Operator, that's the conclusion of the call.
Thank you, sir. Ladies and gentlemen, this concludes The Southern Company first quarter 2020 earnings call. You may now disconnect.