10-QPeriod: Q2 FY2015

SOUTHERN CO Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 5, 2015For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) reported its second quarter 2015 results, with a focus on its primary operating utilities: Alabama Power, Georgia Power, Gulf Power, and Mississippi Power, as well as Southern Power, its wholesale generation subsidiary. Overall, the company demonstrated a mixed financial performance across its subsidiaries, with some segments showing revenue growth driven by rate increases, while others experienced declines due to decreased wholesale sales and higher operating expenses. Key financial highlights include increased net income for Alabama Power due to rate adjustments and warmer weather, while Georgia Power saw a decrease in net income attributed to higher operating expenses and a billing error correction. Mississippi Power's results were significantly impacted by ongoing issues with the Kemper IGCC project, including cost overruns and regulatory setbacks. Southern Power, the wholesale arm, reported improved net income driven by increased affiliate sales and lower fuel costs. Investors should note the significant ongoing regulatory and construction challenges at Mississippi Power, particularly concerning the Kemper IGCC project, which pose risks to future earnings and financial stability.

Financial Highlights

31 data points
Beta

Revenue

$4.34B

Net Income

$643.00M

14.8% Net Margin

EPS (Diluted)

$0.69

Total Assets

$74.18B

Cash & Equivalents

$813.00M

Free Cash Flow

$46.00M

Financial Statements
Beta
Revenue$4.34B
Operating Expenses$3.24B
Operating Income$1.10B
Net Income$643.00M
EPS (Basic)$0.69
EPS (Diluted)$0.69
Shares Outstanding (Basic)909.00M
Shares Outstanding (Diluted)912.00M

Key Highlights

  • 1Alabama Power reported a 15.6% increase in net income for the second quarter of 2015 compared to the prior year, primarily driven by rate increases and warmer weather.
  • 2Georgia Power's net income decreased by 10.9% in the second quarter of 2015 due to higher non-fuel operations and maintenance expenses and a billing error correction.
  • 3Mississippi Power is facing significant financial challenges related to the Kemper IGCC project, with cost overruns leading to substantial charges and regulatory uncertainty impacting rate recovery.
  • 4Southern Power, the wholesale subsidiary, saw a 48.4% increase in net income for the second quarter of 2015, benefiting from increased affiliate sales and lower fuel and purchased power expenses.
  • 5Total operating revenues for the parent company, Southern Company, saw a slight decrease year-over-year, reflecting mixed performance across its operating subsidiaries.
  • 6The company is actively managing environmental compliance costs, with significant discussions and potential impacts arising from new EPA regulations on air and water quality.
  • 7Southern Company's financial position remains stable overall, with significant capital expenditures ongoing, particularly for construction projects like Plant Vogtle.

Frequently Asked Questions

Alabama Power's net income increased by 15.6% in the second quarter of 2015 compared to the same period in 2014. This improvement was primarily attributed to higher rates under its Rate Stabilization and Equalization (Rate RSE) mechanism, warmer weather increasing energy sales, and a decrease in depreciation expenses, partially offset by higher non-fuel operations and maintenance costs.

Mississippi Power is facing significant challenges with its Kemper IGCC project. The estimated costs have substantially exceeded the initial certificated cost of $2.4 billion, reaching approximately $6.23 billion. The company has recorded significant charges for these cost overruns and is experiencing regulatory uncertainty regarding rate recovery. Additionally, a Mississippi Supreme Court decision required the termination of certain rate collections and mandated refunds, further impacting the company's financial position and ability to secure financing.

Southern Company and its subsidiaries are subject to evolving environmental regulations, particularly from the EPA. Key areas of focus include new rules on air emissions (startup, shutdown, malfunction, MATS, CSAPR) and water quality (Clean Water Act definition of 'waters of the U.S.'). The company is assessing the potential impacts of these regulations, which could lead to operational restrictions and increased compliance costs. The Coal Combustion Residuals (CCR) Rule is also a significant factor, with the company recording substantial Asset Retirement Obligations (AROs) related to it.

Southern Power reported an increase in net income for the second quarter of 2015, driven by higher affiliate sales and lower fuel and purchased power expenses. The company continues its growth strategy by acquiring and constructing new generation assets, particularly in solar energy, and securing long-term Power Purchase Agreements (PPAs) for their output. However, it faces risks related to PPA expirations and the need for successful remarketing of capacity.