10-QPeriod: Q3 FY2014

SOUTHERN CO Quarterly Report for Q3 Ended Sep 30, 2014

Filed November 6, 2014For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) reported solid financial performance for the nine months ended September 30, 2014, with increases in net income across its key subsidiaries, driven primarily by improved retail revenues. The company's operating subsidiaries, Alabama Power, Georgia Power, Gulf Power, and Mississippi Power, all showed year-over-year growth in net income, reflecting gains from rate increases, favorable weather patterns, and increased energy sales. Southern Power, focused on wholesale electricity markets, also demonstrated resilience with strong performance in its revenue segments. While overall financial health appears strong, investors should note the significant capital expenditures, particularly Georgia Power's ongoing investment in Plant Vogtle Units 3 & 4 and Mississippi Power's challenges with the Kemper IGCC project. Mississippi Power's net loss for the period was heavily impacted by charges related to the Kemper IGCC cost overruns. Investors should closely monitor the regulatory approvals and cost management for these large-scale projects, as they represent both significant future growth potential and considerable financial risk. The company also faces ongoing environmental regulatory developments that could influence future capital and operational expenses.

Financial Highlights

9 data points
Beta

Revenue

$5.34B

Net Income

$718.00M

13.4% Net Margin

EPS (Diluted)

$0.80

Total Assets

$67.65B

Financial Statements
Beta
Revenue$5.34B
Operating Income$1.28B
Net Income$718.00M
EPS (Basic)$0.80
EPS (Diluted)$0.80

Key Highlights

  • 1Net income increased for all major operating subsidiaries (Alabama Power, Georgia Power, Gulf Power) driven by higher retail revenues due to rate adjustments and favorable weather conditions.
  • 2Southern Power saw a decrease in net income but expanded its renewable energy portfolio with the acquisition of two solar facilities (Adobe Solar and Macho Springs Solar) and is constructing another (Imperial Facility).
  • 3Mississippi Power reported a significant net loss primarily due to substantial charges related to cost overruns and schedule extensions for the Kemper IGCC project, which has a revised in-service date in the first half of 2016.
  • 4Georgia Power continues to invest heavily in the construction of Plant Vogtle Units 3 and 4, with capital expenditures and financing costs being a significant focus.
  • 5The company's subsidiaries are actively managing fuel and purchased power costs, with regulatory clauses in place to recover most of these expenses, mitigating direct impact on net income.
  • 6Environmental regulatory matters, including the proposed Clean Power Plan and other air and water quality regulations, are noted as potential future cost drivers across all operating companies.
  • 7Southern Company and its subsidiaries maintain adequate liquidity through committed credit arrangements and cash flow from operations, with no material adverse effects anticipated from credit rating downgrades at this time.

Frequently Asked Questions

The primary drivers for the increase in net income for Alabama Power and Georgia Power were higher retail revenues. This growth was attributed to rate adjustments approved by their respective Public Service Commissions and the impact of weather patterns (colder weather in early 2014 and warmer weather in Q3 2014) which increased customer demand.

The major concern for Mississippi Power is the ongoing Kemper IGCC project. The company recorded significant charges due to substantial cost overruns and schedule extensions, leading to a significant net loss for the period. The project's in-service date has been pushed to the first half of 2016, and the company has revised its cost estimates upwards, indicating significant financial risk.

Southern Power is expanding its business by acquiring and constructing renewable energy assets, particularly solar photovoltaic facilities. During this period, it acquired two solar facilities (Adobe Solar and Macho Springs Solar) and is in the process of acquiring another (Imperial Facility), all under long-term power purchase agreements (PPAs).

The report highlights several potential future challenges including increasing environmental regulations (such as the proposed Clean Power Plan), the need for significant capital expenditures for projects like Plant Vogtle and the Kemper IGCC, and the ongoing management of costs to maintain customer affordability and regulatory approvals. The outcomes of various legal and regulatory proceedings also represent potential risks.