10-QPeriod: Q3 FY2013

SOUTHERN CO Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 6, 2013For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company's (SO) third quarter 2013 report indicates varied performance across its subsidiaries. While Alabama Power and Georgia Power showed slight declines in net income compared to the prior year, driven by factors like less favorable weather and increased O&M expenses, Mississippi Power experienced a significant net loss due to substantial charges related to the Kemper IGCC project's cost overruns and schedule delays. Southern Power, focused on wholesale energy markets, saw an increase in net income driven by higher energy sales and prices. Across the group, ongoing capital expenditures for infrastructure, environmental compliance, and new generation projects, particularly Mississippi Power's Kemper IGCC, are key areas of focus. Regulatory environments and cost recovery mechanisms remain critical for financial performance, with several subsidiaries engaging in rate case filings and adjustments. Investors should monitor the progress and cost implications of the Kemper IGCC, as well as the impact of environmental regulations on future capital spending and operations.

Financial Highlights

42 data points
Beta

Revenue

$5.02B

Net Income

$869.00M

17.3% Net Margin

EPS (Diluted)

$0.97

Total Assets

$64.70B

Cash & Equivalents

$682.00M

Free Cash Flow

$1.08B

Financial Statements
Beta
Revenue$5.02B
Operating Expenses$3.53B
Operating Income$1.49B
Net Income$869.00M
EPS (Basic)$0.97
EPS (Diluted)$0.97
Shares Outstanding (Basic)878.00M
Shares Outstanding (Diluted)881.00M

Key Highlights

  • 1Mississippi Power reported a significant net loss primarily due to substantial charges related to cost overruns and schedule delays for the Kemper IGCC project, increasing the total estimated cost to approximately $4.02 billion.
  • 2Alabama Power's net income decreased by 7.9% in Q3 2013 compared to Q3 2012, attributed to less favorable weather and increased operations and maintenance expenses.
  • 3Georgia Power's net income also saw a decline of 7.2% in Q3 2013 compared to Q3 2012, mainly due to less favorable weather and higher depreciation and amortization expenses.
  • 4Southern Power demonstrated growth, with net income increasing by 24.5% in Q3 2013 compared to Q3 2012, driven by higher wholesale revenues from increased energy sales and prices.
  • 5The company is undertaking significant capital expenditures for plant upgrades, environmental compliance, and new generation projects, with Mississippi Power's Kemper IGCC being the most substantial and concerning item.
  • 6Several subsidiaries are actively involved in regulatory proceedings, including rate case filings and adjustments, impacting future revenue recovery and customer pricing.
  • 7All listed companies confirmed their compliance with debt covenants, and the parent company, Southern Company, has access to significant committed credit arrangements for liquidity support.

Frequently Asked Questions

The Kemper IGCC project is significantly over budget and behind schedule. Mississippi Power revised its cost estimate to approximately $4.02 billion and delayed the in-service date to Q4 2014. The company recorded substantial charges in the current period due to these cost overruns and delays, which negatively impacted its financial results.

Environmental regulations, such as EPA's MATS rule and potential rules on water quality and coal combustion byproducts, are driving significant capital expenditures for compliance across subsidiaries. While companies have mechanisms to recover costs through regulated rates, the ultimate impact on future unit retirement and replacement decisions, as well as potential effects on demand if costs lead to higher prices, are still being evaluated.

Southern Power is experiencing growth in its wholesale business, driven by increased energy sales and higher prices, particularly from non-affiliated customers. The company continues to execute its strategy of acquiring and constructing new generation assets, with a focus on renewable energy projects.

Mississippi Power reported that its disclosure controls and procedures were not effective for the period, primarily due to a material weakness identified in its prior reporting related to the Kemper IGCC cost estimating and disclosure processes. Remedial actions have been implemented, and management's assessment of their effectiveness is ongoing.