10-QPeriod: Q2 FY2014

SOUTHERN CO Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 7, 2014For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) reported a solid financial performance for the second quarter and first half of 2014. The company's subsidiaries, particularly Alabama Power and Georgia Power, demonstrated revenue growth driven by rate increases and, in some cases, warmer weather, which boosted energy sales. Alabama Power saw a significant 14.6% increase in net income year-over-year, reaching $360 million for the first six months, largely due to improved retail revenues from rate adjustments and a weather-related uplift. Georgia Power also posted strong year-over-year growth, with net income up 20.5% to $577 million for the first half, benefiting from base rate increases and warmer weather. Southern Power, focused on wholesale electricity generation, reported a 12.6% increase in net income for the first half, driven by higher energy revenues from non-affiliate contracts and new solar projects coming online. Mississippi Power, however, continued to grapple with significant charges related to its Kemper IGCC project, resulting in a net loss for the period, although operational cash flow was positive. Overall, the core utility operations showed resilience and growth, while the company manages significant capital projects.

Financial Highlights

9 data points
Beta

Revenue

$4.47B

Net Income

$611.00M

13.7% Net Margin

EPS (Diluted)

$0.68

Total Assets

$66.40B

Financial Statements
Beta
Revenue$4.47B
Operating Income$1.10B
Net Income$611.00M
EPS (Basic)$0.68
EPS (Diluted)$0.68

Key Highlights

  • 1Alabama Power's net income increased by 14.6% to $360 million for the first six months of 2014, driven by higher retail revenues and favorable weather.
  • 2Georgia Power's net income rose by 20.5% to $577 million for the first six months of 2014, supported by base rate increases and improved energy sales.
  • 3Southern Power's net income grew by 12.6% to $64.3 million for the first half, boosted by new solar projects and increased non-affiliate energy revenues.
  • 4Mississippi Power reported a net loss of $109.6 million for the first six months, significantly impacted by an estimated $380 million charge related to the Kemper IGCC project cost overruns.
  • 5Total operating revenues for the consolidated entity increased, with retail revenues up across Alabama Power and Georgia Power, and wholesale revenues up for Southern Power.
  • 6The company reported robust operating cash flows across most subsidiaries, indicating strong underlying business performance, despite challenges faced by Mississippi Power.
  • 7Southern Company's financial condition remained stable, with adequate liquidity and access to capital markets to fund ongoing operations and construction projects.

Frequently Asked Questions

Revenue growth for Alabama Power and Georgia Power was primarily driven by base rate increases approved by their respective regulatory commissions. Additionally, weather patterns, including colder weather in the first quarter and warmer weather in the second quarter, contributed to increased energy sales and revenues for both subsidiaries.

Mississippi Power continues to face significant challenges with the Kemper IGCC project. The company recorded a pre-tax charge of $380 million in the first quarter of 2014 due to revised cost estimates exceeding the $2.88 billion cost cap. The project's in-service date has been further extended. Despite these issues, Mississippi Power generated positive operating cash flow for the period, but the project's financial implications continue to be a significant concern.

Southern Power's acquisitions of Adobe Solar, LLC and Macho Springs Solar, LLC, which added approximately 70 MW of solar capacity, contributed positively to its financial performance. These new assets, operating under long-term Power Purchase Agreements (PPAs), increased energy revenues and supported a 12.6% year-over-year growth in net income for the first half of 2014.

The company faces ongoing compliance costs related to federal and state environmental statutes and regulations, particularly concerning air and water quality. While these costs could impact future operations if not recovered through rates, the company's regulatory mechanisms are designed to allow for the recovery of approved environmental compliance costs. The outcome of various EPA regulations, such as the Clean Power Plan, remains uncertain and could lead to further capital expenditures.