01—Abstract
Summary
Summary of the 10-K filed February 27, 2014. Cited figures are marked; the original filing is the authoritative source.
Southern Company (SO) operates as a prominent utility, providing electric services across Alabama, Georgia, Florida, and Mississippi through its four primary operating subsidiaries: Alabama Power, Georgia Power, Gulf Power, and Mississippi Power.
The company also engages in wholesale electricity sales and generation asset management through Southern Power Company, and has diversified interests in telecommunications and leveraged leases. For the fiscal year ending December 30, 2013, Southern Company reported a net income of $1.6 billiona, a decrease of 30% from the previous year, largely attributed to significant pre-tax charges of $1.2 billion related to cost revisions for the Kemper IGCC project. Despite this, the company maintained a stable financial condition.
Key operational highlights included better-than-target peak season plant availability for fossil/hydro plants and improved transmission/distribution system reliability. However, earnings per share (EPS) on a GAAP basis did not meet targets due to the Kemper IGCC charges. The company also continued its significant construction program, with major investments in Plant Vogtle Units 3 and 4 and the Kemper IGCC, subject to various risks including cost overruns and delays.
02—Key points
Key Highlights
- Southern Company operates through four traditional operating subsidiaries (Alabama Power, Georgia Power, Gulf Power, Mississippi Power) and Southern Power Company, serving customers across four Southeastern states.
- Net income for 2013 was $1.6 billion, a 30% decrease from 2012, primarily due to $1.2 billion in pre-tax charges related to cost revisions for the Kemper IGCC project.
- The company reported strong operational performance with improved plant availability and system reliability in key metrics.
- Southern Company's construction program includes significant investments in major projects like Plant Vogtle Units 3 and 4 and the Kemper IGCC, which carry associated risks related to cost overruns and project completion timelines.
- The company's strategy involves a balanced approach to regulated operations and competitive wholesale market participation through Southern Power, focusing on long-term capacity contracts.
- Environmental compliance remains a significant focus, with substantial capital expenditures projected for the coming years to meet evolving regulations under the Clean Air Act and other environmental statutes.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $17.09B$16.54B | +3.3% |
| Operating Expenses | $13.83B$12.07B | +14.6% |
| Operating Income | $3.25B$4.46B | −27.1% |
| Net Income | $1.71B$2.42B | −29.2% |
| EPS (Basic) | $1.88$2.70 | −30.4% |
| EPS (Diluted) | $1.87$2.67 | −30.0% |
| Shares Outstanding (Basic) | 877.00M871.00M | +0.7% |
| Shares Outstanding (Diluted) | 881.00M879.00M | +0.2% |
05—Questions
Frequently Asked Questions
What were the primary drivers for the decrease in Southern Company's net income in 2013 compared to 2012?
The primary driver for the decrease in net income was the recognition of $1.2 billion in pre-tax charges related to revisions in the estimated costs for Mississippi Power's construction of the Kemper IGCC project, which exceeded the established cost cap. This significantly impacted overall profitability.
What are Southern Company's major ongoing construction projects?
Southern Company's two largest ongoing construction projects are Plant Vogtle Units 3 and 4, two nuclear generating units with Georgia Power holding a 45.7% ownership interest, and the Kemper IGCC facility in Mississippi, in which Mississippi Power is expected to hold an 85% ownership interest. These projects involve substantial capital investment and are subject to regulatory oversight, construction risks, and potential cost overruns.
How does Southern Company manage its environmental compliance costs?
Southern Company invests significantly in environmental capital retrofit projects to comply with federal and state environmental statutes and regulations, such as the Clean Air Act. The company expects to recover a major portion of these costs through existing ratemaking provisions for its traditional operating companies and market-based rates for Southern Power. However, there is no assurance that all such costs will be recovered, and compliance costs could impact future unit retirement and replacement decisions, as well as overall financial condition if not recovered through rates or contracts.
What is Southern Power Company's role within the Southern Company system?
Southern Power Company operates as an electric wholesale generation subsidiary. It constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. This segment of the business aims to create value through various transactions and is generally insulated from significant fuel supply and transmission risks by making these the responsibility of counterparties to its Power Purchase Agreements (PPAs).
06—Continue