What is the main impact of the new rate plan on Georgia Power's revenues?

The new rate plan allows Georgia Power to increase its rates annually from 2020 through 2022. The total estimated increases through existing tariffs are $342 million in 2020, $181 million in 2021, and $386 million in 2022. These increases are intended to recover costs related to Traditional Base rates, environmental compliance, and demand-side management.

How will Georgia Power's profitability be managed under this plan?

The plan sets a target retail Return on Equity (ROE) of 10.50% and an evaluation range of 9.50% to 12.00%. If Georgia Power's earnings exceed 12.00% ROE, 60% of those excess earnings will be shared with customers (40% refund, 40% reduction of regulatory assets), while Georgia Power retains 20%. If earnings fall below 9.50% ROE, Georgia Power can petition the PSC for interim cost recovery or file a full rate case, but there is no automatic recovery of shortfalls.

What is the significance of the increased equity ratio?

The Georgia PSC approved an increase in Georgia Power's equity ratio to 56% from 55%. This change can impact the company's capital structure and may influence its borrowing costs and overall financial flexibility. An increased equity ratio can sometimes be viewed as strengthening a company's balance sheet, but it also typically comes with a higher cost of capital compared to debt.

How are environmental costs being addressed?

The approved plan specifies that coal combustion residual asset retirement obligations will be recovered through the Environmental Compliance Cost Recovery (ECCR) tariff. This provides a mechanism for Georgia Power to recoup costs associated with managing and retiring these environmental liabilities, with the full weighted average cost of capital applied to any under-recovered balance.

SOUTHERN CO 8-K SEC Disclosure

Summary

This 8-K filing announces that on December 17, 2019, the Georgia Public Service Commission (PSC) approved an alternate rate plan (ARP) for Georgia Power Company, a subsidiary of Southern Co., effective January 1, 2020, through December 31, 2022. This plan was developed through a settlement agreement with several key industrial and municipal customers. The 2019 ARP allows for annual rate increases over the three-year period, primarily for Traditional Base rates and through the Environmental Compliance Cost Recovery (ECCR) tariff to cover coal combustion residual asset retirement obligations. Key to investors is the establishment of a retail Return on Equity (ROE) of 10.50%, with earnings evaluated against a range of 9.50% to 12.00%. A new, higher equity ratio of 56% was also approved. A significant aspect is the earnings sharing mechanism: any retail earnings above 12.00% ROE will be split, with 40% reducing regulatory assets, 40% refunded to customers, and 20% retained by Georgia Power. There's no automatic recovery for shortfalls below 9.50% ROE, but Georgia Power can petition for interim cost recovery or file a full rate case if earnings are projected to fall below this threshold. The filing also details the resolution of past earnings above the band for 2018 and 2019, with a portion used to reduce regulatory assets and the remainder refunded to customers.

Key Highlights

1Georgia PSC approved a new Alternate Rate Plan (ARP) for Georgia Power Company for 2020-2022.
2The 2019 ARP allows for annual rate increases totaling $342M in 2020, $181M in 2021, and $386M in 2022.
3Georgia Power's retail Return on Equity (ROE) is set at 10.50%, with an allowed range of 9.50% to 12.00%.
4An earnings sharing mechanism is in place: 60% of earnings above 12.00% ROE goes to customers (40% refund, 40% regulatory assets), and 20% is retained by Georgia Power.
5The equity ratio for Georgia Power was increased to 56% from 55%.
6Coal combustion residual asset retirement obligations will be recovered through the Environmental Compliance Cost Recovery (ECCR) tariff.
7Georgia Power will generally not file for a general base rate increase during the ARP period, but must file a general rate case by July 1, 2022.

SOUTHERN CO 8-K Report, Corporate Update (Dec 17, 2019)

Summary

Key Highlights

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