10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number | | Registrant, State of Incorporation, Address and Telephone Number | | I.R.S. Employer Identification No. |
1-3526 | | The Southern Company (A Delaware Corporation) 30 Ivan Allen Jr. Boulevard, N.W. Atlanta, Georgia 30308 (404) 506-5000 | | 58-0690070 |
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1-3164 | | Alabama Power Company (An Alabama Corporation) 600 North 18th Street Birmingham, Alabama 35203 (205) 257-1000 | | 63-0004250 |
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1-6468 | | Georgia Power Company (A Georgia Corporation) 241 Ralph McGill Boulevard, N.E. Atlanta, Georgia 30308 (404) 506-6526 | | 58-0257110 |
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001-31737 | | Gulf Power Company (A Florida Corporation) One Energy Place Pensacola, Florida 32520 (850) 444-6111 | | 59-0276810 |
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001-11229 | | Mississippi Power Company (A Mississippi Corporation) 2992 West Beach Boulevard Gulfport, Mississippi 39501 (228) 864-1211 | | 64-0205820 |
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333-98553 | | Southern Power Company (A Delaware Corporation) 30 Ivan Allen Jr. Boulevard, N.W. Atlanta, Georgia 30308 (404) 506-5000 | | 58-2598670 |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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Registrant | | Large Accelerated Filer | | Accelerated Filer | | Non- accelerated Filer | | Smaller Reporting Company |
The Southern Company | | X | | | | | | |
Alabama Power Company | | | | | | X | | |
Georgia Power Company | | | | | | X | | |
Gulf Power Company | | | | | | X | | |
Mississippi Power Company | | | | | | X | | |
Southern Power Company | | | | | | X | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ (Response applicable to all registrants.)
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Registrant | | Description of Common Stock | | Shares Outstanding at March 31, 2016 |
|
The Southern Company | | Par Value $5 Per Share | | 918,258,425 |
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Alabama Power Company | | Par Value $40 Per Share | | 30,537,500 |
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Georgia Power Company | | Without Par Value | | 9,261,500 |
|
Gulf Power Company | | Without Par Value | | 5,642,717 |
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Mississippi Power Company | | Without Par Value | | 1,121,000 |
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Southern Power Company | | Par Value $0.01 Per Share | | 1,000 |
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This combined Form 10-Q is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Southern Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2016
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| PART I—FINANCIAL INFORMATION | |
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Item 1. | Financial Statements (Unaudited) | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. | | |
Item 4. | | |
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2016
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Item 1. | | |
Item 1A. | | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | Inapplicable |
Item 3. | Defaults Upon Senior Securities | Inapplicable |
Item 4. | Mine Safety Disclosures | Inapplicable |
Item 5. | Other Information | Inapplicable |
Item 6. | | |
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DEFINITIONS |
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Term | Meaning |
| |
2012 MPSC CPCN Order | A detailed order issued by the Mississippi PSC in April 2012 confirming the CPCN originally approved by the Mississippi PSC in 2010 authorizing the acquisition, construction, and operation of the Kemper IGCC |
2013 ARP | Alternative Rate Plan approved by the Georgia PSC in 2013 for Georgia Power for the years 2014 through 2016 and subsequently extended through 2019 |
AFUDC | Allowance for funds used during construction |
AGL Resources | AGL Resources Inc. |
Alabama Power | Alabama Power Company |
ASC | Accounting Standards Codification |
ASU | Accounting Standards Update |
Baseload Act | State of Mississippi legislation designed to enhance the Mississippi PSC's authority to facilitate development and construction of baseload generation in the State of Mississippi |
Bridge Agreement | Senior unsecured Bridge Credit Agreement, dated as of September 30, 2015, among Southern Company, the lenders identified therein, and Citibank, N.A. |
CCR | Coal combustion residuals |
Clean Air Act | Clean Air Act Amendments of 1990 |
CO2 | Carbon dioxide |
COD | Commercial operation date |
Contractor | Westinghouse and its affiliate, WECTEC Global Project Services Inc. (formerly known as CB&I Stone & Webster, Inc.), formerly a subsidiary of The Shaw Group Inc. and Chicago Bridge & Iron Company N.V. |
CPCN | Certificate of public convenience and necessity |
CWIP | Construction work in progress |
DOE | U.S. Department of Energy |
ECO Plan | Mississippi Power's Environmental Compliance Overview Plan |
Eligible Project Costs | Certain costs of construction relating to Plant Vogtle Units 3 and 4 that are eligible for financing under the Title XVII Loan Guarantee Program |
EPA | U.S. Environmental Protection Agency |
FASB | Financial Accounting Standards Board |
FERC | Federal Energy Regulatory Commission |
FFB | Federal Financing Bank |
Fitch | Fitch Ratings, Inc. |
Form 10-K | Combined Annual Report on Form 10-K of Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power for the year ended December 31, 2015 |
GAAP | U.S. generally accepted accounting principles |
Georgia Power | Georgia Power Company |
Gulf Power | Gulf Power Company |
IGCC | Integrated coal gasification combined cycle |
IIC | Intercompany interchange contract |
Internal Revenue Code | Internal Revenue Code of 1986, as amended |
IRS | Internal Revenue Service |
ITC | Investment tax credit |
Kemper IGCC | IGCC facility under construction by Mississippi Power in Kemper County, Mississippi |
KWH | Kilowatt-hour |
LIBOR | London Interbank Offered Rate |
MATS rule | Mercury and Air Toxics Standards rule |
Merger | The merger of Merger Sub with and into AGL Resources on the terms and subject to the conditions set forth in the Merger Agreement, with AGL Resources continuing as the surviving corporation and a wholly-owned, direct subsidiary of Southern Company |
DEFINITIONS
(continued)
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Term | Meaning |
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Merger Agreement | Agreement and Plan of Merger, dated as of August 23, 2015, among Southern Company, AGL Resources, and Merger Sub |
Merger Sub | AMS Corp., a wholly-owned, direct subsidiary of Southern Company |
Mirror CWIP | A regulatory liability account for use in mitigating future rate impacts for Mississippi Power customers |
Mississippi Power | Mississippi Power Company |
mmBtu | Million British thermal units |
Moody's | Moody's Investors Service, Inc. |
MW | Megawatt |
NCCR | Georgia Power's Nuclear Construction Cost Recovery |
NRC | U.S. Nuclear Regulatory Commission |
OCI | Other comprehensive income |
PEP | Mississippi Power's Performance Evaluation Plan |
Plant Vogtle Units 3 and 4 | Two new nuclear generating units under construction at Georgia Power's Plant Vogtle |
power pool | The operating arrangement whereby the integrated generating resources of the traditional operating companies and Southern Power Company (excluding subsidiaries) are subject to joint commitment and dispatch in order to serve their combined load obligations |
PPA | Power purchase agreement |
PSC | Public Service Commission |
PTC | Production tax credit |
Rate CNP | Alabama Power's Rate Certificated New Plant |
Rate CNP Compliance | Alabama Power's Rate Certificated New Plant Compliance |
Rate CNP PPA | Alabama Power's Rate Certificated New Plant Power Purchase Agreement |
Rate RSE | Alabama Power's Rate Stabilization and Equalization plan |
registrants | Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power Company |
ROE | Return on equity |
S&P | Standard and Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. |
scrubber | Flue gas desulfurization system |
SEC | U.S. Securities and Exchange Commission |
SMEPA | South Mississippi Electric Power Association |
Southern Company | The Southern Company |
Southern Company system | Southern Company, the traditional operating companies, Southern Power, Southern Electric Generating Company, Southern Nuclear, Southern Company Services, Inc. (the Southern Company system service company), Southern Communications Services, Inc., and other subsidiaries |
Southern Nuclear | Southern Nuclear Operating Company, Inc. |
Southern Power | Southern Power Company and its subsidiaries |
traditional operating companies | Alabama Power, Georgia Power, Gulf Power, and Mississippi Power |
Vogtle Owners | Georgia Power, Oglethorpe Power Corporation, the Municipal Electric Authority of Georgia, and the City of Dalton, Georgia, an incorporated municipality in the State of Georgia acting by and through its Board of Water, Light, and Sinking Fund Commissioners |
Westinghouse | Westinghouse Electric Company LLC |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements include, among other things, statements concerning retail rates, the potential financing of the Merger, the expected timing of the completion of the Merger, the strategic goals for the wholesale business, economic conditions, fuel and environmental cost recovery and other rate actions, current and proposed environmental regulations and related compliance plans and estimated expenditures, pending or potential litigation matters, access to sources of capital, financing activities, completion dates of acquisitions and construction projects, filings with state and federal regulatory authorities, federal income tax benefits, estimated sales and purchases under power sale and purchase agreements, and estimated construction and other plans and expenditures. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential," or "continue" or the negative of these terms or other similar terminology. There are various factors that could cause actual results to differ materially from those suggested by the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include:
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• | the impact of recent and future federal and state regulatory changes, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry, environmental laws regulating emissions, discharges, and disposal to air, water, and land, and also changes in tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations; |
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• | current and future litigation, regulatory investigations, proceedings, or inquiries, including, without limitation, IRS and state tax audits; |
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• | the effects, extent, and timing of the entry of additional competition in the markets in which Southern Company's subsidiaries operate; |
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• | variations in demand for electricity, including those relating to weather, the general economy and recovery from the last recession, population and business growth (and declines), the effects of energy conservation and efficiency measures, including from the development and deployment of alternative energy sources such as self-generation and distributed generation technologies, and any potential economic impacts resulting from federal fiscal decisions; |
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• | available sources and costs of fuels; |
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• | the ability to control costs and avoid cost overruns during the development and construction of facilities, which include the development and construction of generating facilities with designs that have not been finalized or previously constructed, including changes in labor costs and productivity, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contractor or supplier delay, non-performance under construction, operating, or other agreements, operational readiness, including specialized operator training and required site safety programs, unforeseen engineering or design problems, start-up activities (including major equipment failure and system integration), and/or operational performance (including additional costs to satisfy any operational parameters ultimately adopted by any PSC); |
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• | the ability to construct facilities in accordance with the requirements of permits and licenses, to satisfy any environmental performance standards and the requirements of tax credits and other incentives, and to integrate facilities into the Southern Company system upon completion of construction; |
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• | investment performance of Southern Company's employee and retiree benefit plans and the Southern Company system's nuclear decommissioning trust funds; |
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• | state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate actions relating to fuel and other cost recovery mechanisms; |
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• | legal proceedings and regulatory approvals and actions related to Plant Vogtle Units 3 and 4, including Georgia PSC approvals and NRC actions; |
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• | actions related to cost recovery for the Kemper IGCC, including the ultimate impact of the 2015 decision of the Mississippi Supreme Court, the Mississippi PSC's December 2015 rate order, and related legal or regulatory proceedings, Mississippi PSC review of the prudence of Kemper IGCC costs and approval of further permanent rate recovery plans, actions relating to proposed securitization, satisfaction of requirements to utilize grants, and the ultimate impact of the termination of the proposed sale of an interest in the Kemper IGCC to SMEPA; |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
(continued)
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• | the ability to successfully operate the electric utilities' generating, transmission, and distribution facilities and the successful performance of necessary corporate functions; |
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• | the inherent risks involved in operating and constructing nuclear generating facilities, including environmental, health, regulatory, natural disaster, terrorism, and financial risks; |
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• | the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities; |
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• | internal restructuring or other restructuring options that may be pursued; |
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• | potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries; |
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• | the expected timing, likelihood, and benefits of completion of the Merger, including the failure to receive, on a timely basis or otherwise, the required approvals by government or regulatory agencies (including the terms of such approvals), the possibility that long-term financing for the Merger may not be put in place prior to the closing, the risk that a condition to closing of the Merger or funding of the Bridge Agreement may not be satisfied, the possibility that the anticipated benefits from the Merger cannot be fully realized or may take longer to realize than expected, the possibility that costs related to the integration of Southern Company and AGL Resources will be greater than expected, the credit ratings of the combined company or its subsidiaries may be different from what the parties expect, the ability to retain and hire key personnel and maintain relationships with customers, suppliers, or other business partners, the diversion of management time on Merger-related issues, and the impact of legislative, regulatory, and competitive changes; |
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• | the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due and to perform as required; |
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• | the ability to obtain new short- and long-term contracts with wholesale customers; |
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• | the direct or indirect effect on the Southern Company system's business resulting from cyber intrusion or terrorist incidents and the threat of terrorist incidents; |
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• | interest rate fluctuations and financial market conditions and the results of financing efforts; |
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• | changes in Southern Company's and any of its subsidiaries' credit ratings, including impacts on interest rates, access to capital markets, and collateral requirements; |
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• | the impacts of any sovereign financial issues, including impacts on interest rates, access to capital markets, impacts on currency exchange rates, counterparty performance, and the economy in general, as well as potential impacts on the benefits of the DOE loan guarantees; |
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• | the ability of Southern Company's subsidiaries to obtain additional generating capacity (or sell excess generating capacity) at competitive prices; |
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• | catastrophic events such as fires, earthquakes, explosions, floods, hurricanes and other storms, droughts, pandemic health events such as influenzas, or other similar occurrences; |
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• | the direct or indirect effects on the Southern Company system's business resulting from incidents affecting the U.S. electric grid or operation of generating resources; |
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• | the effect of accounting pronouncements issued periodically by standard-setting bodies; and |
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• | other factors discussed elsewhere herein and in other reports (including the Form 10-K) filed by the registrants from time to time with the SEC. |
The registrants expressly disclaim any obligation to update any forward-looking statements.
THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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| For the Three Months Ended March 31, |
| 2016 | | 2015 |
| (in millions) |
Operating Revenues: | | | |
Retail revenues | $ | 3,377 |
| | $ | 3,542 |
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Wholesale revenues | 396 |
| | 467 |
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Other electric revenues | 181 |
| | 163 |
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Other revenues | 11 |
| | 11 |
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Total operating revenues | 3,965 |
| | 4,183 |
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Operating Expenses: | | | |
Fuel | 911 |
| | 1,212 |
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Purchased power | 165 |
| | 144 |
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Other operations and maintenance | 1,106 |
| | 1,122 |
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Depreciation and amortization | 541 |
| | 487 |
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Taxes other than income taxes | 256 |
| | 252 |
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Estimated loss on Kemper IGCC | 53 |
| | 9 |
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Total operating expenses | 3,032 |
| | 3,226 |
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Operating Income | 933 |
| | 957 |
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Other Income and (Expense): | | | |
Allowance for equity funds used during construction | 53 |
| | 63 |
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Interest expense, net of amounts capitalized | (246 | ) | | (213 | ) |
Other income (expense), net | (21 | ) | | (8 | ) |
Total other income and (expense) | (214 | ) | | (158 | ) |
Earnings Before Income Taxes | 719 |
| | 799 |
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Income taxes | 222 |
| | 274 |
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Consolidated Net Income | 497 |
| | 525 |
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Less: | | | |
Dividends on Preferred and Preference Stock of Subsidiaries | 11 |
| | 17 |
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Net income attributable to noncontrolling interests | 1 |
| | — |
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Consolidated Net Income Attributable to Southern Company | $ | 485 |
| | $ | 508 |
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Common Stock Data: | | | |
Earnings per share (EPS) — | | | |
Basic EPS | $ | 0.53 |
| | $ | 0.56 |
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Diluted EPS | $ | 0.53 |
| | $ | 0.56 |
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Average number of shares of common stock outstanding (in millions) | | | |
Basic | 916 |
| | 910 |
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Diluted | 922 |
| | 915 |
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Cash dividends paid per share of common stock | $ | 0.5425 |
| | $ | 0.5250 |
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The accompanying notes as they relate to Southern Company are an integral part of these consolidated financial statements.
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
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| For the Three Months Ended March 31, |
| 2016 | | 2015 |
| (in millions) |
Consolidated Net Income | $ | 497 |
| | $ | 525 |
|
Other comprehensive income (loss): | | | |
Qualifying hedges: | | | |
Changes in fair value, net of tax of $(72) and $(11), respectively | (117 | ) | | (18 | ) |
Reclassification adjustment for amounts included in net income, net of tax of $1 and $1, respectively | 2 |
| | 1 |
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Pension and other post retirement benefit plans: | | | |
Reclassification adjustment for amounts included in net income, net of tax of $1 and $1, respectively | 1 |
| | 2 |
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Total other comprehensive income (loss) | (114 | ) | | (15 | ) |
Less: | | | |
Dividends on preferred and preference stock of subsidiaries | 11 |
| | 17 |
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Comprehensive income attributable to noncontrolling interests | 1 |
| | — |
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Consolidated Comprehensive Income Attributable to Southern Company | $ | 371 |
| | $ | 493 |
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The accompanying notes as they relate to Southern Company are an integral part of these consolidated financial statements.
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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| For the Three Months Ended March 31, |
| 2016 | | 2015 |
| (in millions) |
Operating Activities: | | | |
Consolidated net income | $ | 497 |
| | $ | 525 |
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Adjustments to reconcile consolidated net income to net cash provided from operating activities — | | | |
Depreciation and amortization, total | 639 |
| | 578 |
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Deferred income taxes | (4 | ) | | 113 |
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Allowance for equity funds used during construction | (53 | ) | | (63 | ) |
Stock based compensation expense | 58 |
| | 56 |
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Estimated loss on Kemper IGCC | 53 |
| | 9 |
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Other, net | (13 | ) | | 4 |
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Changes in certain current assets and liabilities — | | | |
-Receivables | 235 |
| | 180 |
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-Fossil fuel stock | 31 |
| | 76 |
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-Materials and supplies | (14 | ) | | 4 |
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-Other current assets | (90 | ) | | (89 | ) |
-Accounts payable | (72 | ) | | (426 | ) |
-Accrued taxes | (60 | ) | | 197 |
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-Accrued compensation | (332 | ) | | (381 | ) |
-Retail fuel cost over recovery - short-term | 25 |
| | 49 |
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-Mirror CWIP | — |
| | 40 |
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-Other current liabilities | (35 | ) | | 41 |
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Net cash provided from operating activities | 865 |
| | 913 |
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Investing Activities: | | | |
Plant acquisitions | (114 | ) | | (6 | ) |
Property additions | (1,872 | ) | | (1,091 | ) |
Investment in restricted cash | (289 | ) | | — |
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Distribution of restricted cash | 292 |
| | — |
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Nuclear decommissioning trust fund purchases | (316 | ) | | (290 | ) |
Nuclear decommissioning trust fund sales | 311 |
| | 284 |
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Cost of removal, net of salvage | (52 | ) | | (36 | ) |
Change in construction payables, net | (94 | ) | | 65 |
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Prepaid long-term service agreement | (49 | ) | | (37 | ) |
Other investing activities | (14 | ) | | 4 |
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Net cash used for investing activities | (2,197 | ) | | (1,107 | ) |
Financing Activities: | | | |
Increase in notes payable, net | 294 |
| | 597 |
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Proceeds — | | | |
Long-term debt issuances | 1,997 |
| | 550 |
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Common stock issuances | 270 |
| | 112 |
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Short-term borrowings | — |
| | 280 |
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Redemptions and repurchases — | | | |
Long-term debt | (888 | ) | | (333 | ) |
Common stock repurchased | — |
| | (115 | ) |
Short-term borrowings | (475 | ) | | — |
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Distributions to noncontrolling interests | (4 | ) | | — |
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Capital contributions from noncontrolling interests | 131 |
| | — |
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Purchase of membership interests from noncontrolling interests | (129 | ) | | — |
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Payment of common stock dividends | (497 | ) | | (478 | ) |
Other financing activities | (17 | ) | | (17 | ) |
Net cash provided from financing activities | 682 |
| | 596 |
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Net Change in Cash and Cash Equivalents | (650 | ) | | 402 |
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Cash and Cash Equivalents at Beginning of Period | 1,404 |
| | 710 |
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Cash and Cash Equivalents at End of Period | $ | 754 |
| | $ | 1,112 |
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Supplemental Cash Flow Information: | | | |
Cash paid (received) during the period for -- | | | |
Interest (net of $30 and $32 capitalized for 2016 and 2015, respectively) | $ | 224 |
| | $ | 207 |
|
Income taxes, net | (141 | ) | | (289 | ) |
Noncash transactions — Accrued property additions at end of period | 731 |
| | 347 |
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The accompanying notes as they relate to Southern Company are an integral part of these consolidated financial statements.
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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| | | | | | | | |
Assets | | At March 31, 2016 | | At December 31, 2015 |
| | (in millions) |
Current Assets: | | | | |
Cash and cash equivalents | | $ | 754 |
| | $ | 1,404 |
|
Receivables — | | | | |
Customer accounts receivable | | 988 |
| | 1,058 |
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Unbilled revenues | | 380 |
| | 397 |
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Under recovered regulatory clause revenues | | 43 |
| | 63 |
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Income taxes receivable, current | | — |
| | 144 |
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Other accounts and notes receivable | | 236 |
| | 398 |
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Accumulated provision for uncollectible accounts | | (13 | ) | | (13 | ) |
Fossil fuel stock, at average cost | | 837 |
| | 868 |
|
Materials and supplies, at average cost | | 1,085 |
| | 1,061 |
|
Vacation pay | | 181 |
| | 178 |
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Prepaid expenses | | 486 |
| | 495 |
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Other regulatory assets, current | | 394 |
| | 402 |
|
Other current assets | | 90 |
| | 71 |
|
Total current assets | | 5,461 |
| | 6,526 |
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Property, Plant, and Equipment: | | | | |
In service | | 76,553 |
| | 75,118 |
|
Less accumulated depreciation | | 24,566 |
| | 24,253 |
|
Plant in service, net of depreciation | | 51,987 |
| | 50,865 |
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Other utility plant, net | | 218 |
| | 233 |
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Nuclear fuel, at amortized cost | | 941 |
| | 934 |
|
Construction work in progress | | 9,406 |
| | 9,082 |
|
Total property, plant, and equipment | | 62,552 |
| | 61,114 |
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Other Property and Investments: | | | | |
Nuclear decommissioning trusts, at fair value | | 1,540 |
| | 1,512 |
|
Leveraged leases | | 761 |
| | 755 |
|
Miscellaneous property and investments | | 488 |
| | 485 |
|
Total other property and investments | | 2,789 |
| | 2,752 |
|
Deferred Charges and Other Assets: | | | | |
Deferred charges related to income taxes | | 1,572 |
| | 1,560 |
|
Unamortized loss on reacquired debt | | 220 |
| | 227 |
|
Other regulatory assets, deferred | | 4,957 |
| | 4,989 |
|
Income taxes receivable, non-current | | 413 |
| | 413 |
|
Other deferred charges and assets | | 771 |
| | 737 |
|
Total deferred charges and other assets | | 7,933 |
| | 7,926 |
|
Total Assets | | $ | 78,735 |
| | $ | 78,318 |
|
The accompanying notes as they relate to Southern Company are an integral part of these consolidated financial statements.
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
| | | | | | | | |
Liabilities and Stockholders' Equity | | At March 31, 2016 | | At December 31, 2015 |
| | (in millions) |
Current Liabilities: | | | | |
Securities due within one year | | $ | 2,392 |
| | $ | 2,674 |
|
Notes payable | | 1,195 |
| | 1,376 |
|
Accounts payable | | 1,584 |
| | 1,905 |
|
Customer deposits | | 406 |
| | 404 |
|
Accrued taxes — | | | | |
Accrued income taxes | | 14 |
| | 19 |
|
Other accrued taxes | | 240 |
| | 484 |
|
Accrued interest | | 255 |
| | 249 |
|
Accrued vacation pay | | 228 |
| | 228 |
|
Accrued compensation | | 212 |
| | 549 |
|
Asset retirement obligations, current | | 237 |
| | 217 |
|
Liabilities from risk management activities | | 319 |
| | 156 |
|
Other regulatory liabilities, current | | 210 |
| | 278 |
|
Other current liabilities | | 564 |
| | 590 |
|
Total current liabilities | | 7,856 |
| | 9,129 |
|
Long-term Debt | | 26,091 |
| | 24,688 |
|
Deferred Credits and Other Liabilities: | | | | |
Accumulated deferred income taxes | | 12,274 |
| | 12,322 |
|
Deferred credits related to income taxes | | 185 |
| | 187 |
|
Accumulated deferred investment tax credits | | 1,350 |
| | 1,219 |
|
Employee benefit obligations | | 2,546 |
| | 2,582 |
|
Asset retirement obligations, deferred | | 3,504 |
| | 3,542 |
|
Unrecognized tax benefits | | 375 |
| | 370 |
|
Other cost of removal obligations | | 1,151 |
| | 1,162 |
|
Other regulatory liabilities, deferred | | 303 |
| | 254 |
|
Other deferred credits and liabilities | | 754 |
| | 720 |
|
Total deferred credits and other liabilities | | 22,442 |
| | 22,358 |
|
Total Liabilities | | 56,389 |
| | 56,175 |
|
Redeemable Preferred Stock of Subsidiaries | | 118 |
| | 118 |
|
Redeemable Noncontrolling Interests | | 44 |
| | 43 |
|
Stockholders' Equity: | | | | |
Common Stockholders' Equity: | | | | |
Common stock, par value $5 per share — | | | | |
Authorized — 1.5 billion shares | | | | |
Issued -- March 31, 2016: 922 million shares | | | | |
-- December 31, 2015: 915 million shares | | | | |
Treasury -- March 31, 2016: 3.4 million shares | | | | |
-- December 31, 2015: 3.4 million shares | | | | |
Par value | | 4,604 |
| | 4,572 |
|
Paid-in capital | | 6,582 |
| | 6,282 |
|
Treasury, at cost | | (144 | ) | | (142 | ) |
Retained earnings | | 9,999 |
| | 10,010 |
|
Accumulated other comprehensive loss | | (244 | ) | | (130 | ) |
Total Common Stockholders' Equity | | 20,797 |
| | 20,592 |
|
Preferred and Preference Stock of Subsidiaries | | 609 |
| | 609 |
|
Noncontrolling Interests | | 778 |
| | 781 |
|
Total Stockholders' Equity | | 22,184 |
| | 21,982 |
|
Total Liabilities and Stockholders' Equity | | $ | 78,735 |
| | $ | 78,318 |
|
The accompanying notes as they relate to Southern Company are an integral part of these consolidated financial statements.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 2016 vs. FIRST QUARTER 2015
OVERVIEW
Southern Company is a holding company that owns all of the common stock of the traditional operating companies and Southern Power Company and owns other direct and indirect subsidiaries. Discussion of the results of operations is focused on the Southern Company system's primary business of electricity sales by the traditional operating companies and Southern Power. The four traditional operating companies are vertically integrated utilities providing electric service in four Southeastern states. Southern Power constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Company's other business activities include investments in leveraged lease projects and telecommunications. For additional information on these businesses, see BUSINESS – "The Southern Company System – Traditional Operating Companies," " – Southern Power," and " – Other Businesses" in Item 1 of the Form 10-K.
Proposed Merger with AGL Resources
On August 23, 2015, Southern Company entered into the Merger Agreement to acquire AGL Resources. Under the terms of the Merger Agreement, subject to the satisfaction or waiver (if permissible under applicable law) of specified conditions, Merger Sub will be merged with and into AGL Resources. AGL Resources will survive the Merger and become a wholly-owned, direct subsidiary of Southern Company.
Southern Company intends to fund the cash consideration for the Merger using a mix of debt and equity. Southern Company finances its capital needs on a portfolio basis and expects to issue a minimum of $8.0 billion in debt prior to closing the Merger and a minimum of $1.2 billion in equity during 2016. This capital is expected to provide funding for the Merger, the proposed acquisition of PowerSecure International, Inc. (PowerSecure), and Southern Power and other Southern Company system capital projects. Total capital raised in 2016 may increase due to cash needed at the closing of the Merger, settlement of hedges, and incremental investment opportunities, including additional Southern Power projects in excess of its current capital plans. In addition, Southern Company entered into the $8.1 billion Bridge Agreement on September 30, 2015 to provide financing for the Merger in the event long-term financing is not available.
Through May 5, 2016, the Maryland PSC, the Georgia PSC, the California Public Utilities Commission, and the Virginia State Corporation Commission have approved the Merger. On April 15, 2016, Southern Company, AGL Resources, and Northern Illinois Gas Company (collectively, the Joint Applicants) and the Retail Energy Supply Association filed a settlement agreement with the Illinois Commerce Commission. On April 28, 2016, the Joint Applicants, the Illinois Attorney General's Office, and the Citizens Utility Board filed a settlement agreement with the Illinois Commerce Commission. Collectively, these agreements resolve all remaining contested issues for Illinois Commerce Commission approval of the Merger. On May 5, 2016, Southern Company, AGL Resources, Merger Sub, Pivotal Utility Holdings, Inc. d/b/a Elizabethtown Gas, the Division of Rate Counsel, the Staff of the New Jersey Board of Public Utilities, and New Jersey Large Energy Users Coalition entered into a comprehensive settlement agreement relating to the New Jersey Board of Public Utilities review of the Merger. Additionally, the Federal Communications Commission (FCC) has approved the transfer of control over the FCC licenses of certain AGL Resources subsidiaries. Consummation of the Merger remains subject to the satisfaction or waiver of certain closing conditions, including, among others, (i) the approval of the Illinois Commerce Commission and the New Jersey Board of Public Utilities and other approvals required under applicable state laws, (ii) the absence of a judgment, order, decision, injunction, ruling, or other finding or agency requirement of a governmental entity prohibiting the consummation of the Merger, and (iii) other customary closing conditions, including (a) subject to certain materiality qualifiers, the accuracy of each party's representations and warranties and (b) each party's performance in all material respects of its obligations under the Merger Agreement.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Prior to the Merger, Southern Company and AGL Resources will continue to operate as separate companies. Accordingly, except for specific references to the pending Merger, the descriptions of strategy and outlook and the risks and challenges Southern Company faces, and the discussion and analysis of results of operations and financial condition set forth herein relate solely to Southern Company. See Note (I) to the Condensed Financial Statements under "Southern Company – Proposed Merger with AGL Resources" herein for additional information regarding the Merger.
During the first quarter 2016, Southern Company recorded in its statements of income external transaction costs for financing, legal, and consulting services associated with the proposed Merger of approximately $20 million, of which $6 million is included in operating expenses and $14 million is included in other income and (expense).
The ultimate outcome of these matters cannot be determined at this time. See RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Proposed Merger with AGL Resources" of Southern Company in Item 7 of the Form 10-K for additional information related to the proposed Merger and the various risks related thereto.
Construction Program
Construction continues on Plant Vogtle Units 3 and 4 (45.7% ownership interest by Georgia Power in the two units, each with approximately 1,100 MWs) and Mississippi Power's 582-MW Kemper IGCC. See RESULTS OF OPERATIONS – "Estimated Loss on Kemper IGCC," FUTURE EARNINGS POTENTIAL – "Construction Program," and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" herein for additional information. For information about Southern Power's acquisitions and construction of renewable energy facilities, see Note (I) to the Condensed Financial Statements under "Southern Power" herein.
Key Performance Indicators
Southern Company continues to focus on several key performance indicators. These indicators include customer satisfaction, plant availability, system reliability, execution of major construction projects, and earnings per share. For additional information on these indicators, see MANAGEMENT'S DISCUSSION AND ANALYSIS – OVERVIEW – "Key Performance Indicators" of Southern Company in Item 7 of the Form 10-K.
RESULTS OF OPERATIONS
Net Income
|
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$(23) | | (4.5) |
Consolidated net income attributable to Southern Company was $485 million ($0.53 per share) for the first quarter 2016 compared to $508 million ($0.56 per share) for the first quarter 2015. The decrease was primarily the result of lower retail revenues due to milder weather in the first quarter 2016 as compared to the corresponding period in 2015, higher depreciation and amortization, higher charges related to revisions of the estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC, and lower wholesale capacity revenues. The decreases were partially offset by increases in revenues due to increases in non-fuel retail rates and sales growth and a decrease in income taxes primarily from income tax benefits at Southern Power.
See Note 3 to the financial statements of Southern Company under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Retail Revenues
|
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$(165) | | (4.7) |
In the first quarter 2016, retail revenues were $3.4 billion compared to $3.5 billion for the corresponding period in 2015.
Details of the changes in retail revenues were as follows:
|
| | | | | | | |
| | First Quarter 2016 |
| | (in millions) | | (% change) |
Retail – prior year | | $ | 3,542 |
| | |
Estimated change resulting from – | | | | |
Rates and pricing | | 110 |
| | 3.1 |
|
Sales growth | | 22 |
| | 0.6 |
|
Weather | | (85 | ) | | (2.4 | ) |
Fuel and other cost recovery | | (212 | ) | | (6.0 | ) |
Retail – current year | | $ | 3,377 |
| | (4.7 | )% |
Revenues associated with changes in rates and pricing increased in the first quarter 2016 when compared to the corresponding period in 2015 primarily due to increased revenues at Alabama Power under Rate CNP Compliance and at Georgia Power related to increases in base tariffs under the 2013 ARP and the NCCR tariff, all effective January 1, 2016. The increase in rates and pricing was also due to the implementation of rates for certain Kemper IGCC in-service assets at Mississippi Power.
See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power," "Retail Regulatory Matters – Georgia Power – Rate Plans" and " – Nuclear Construction," and "Integrated Coal Gasification Combined – Cycle – Rate Recovery of Kemper IGCC Costs" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements herein for additional information.
Revenues attributable to changes in sales increased in the first quarter 2016 when compared to the corresponding period in 2015. Weather-adjusted residential KWH sales increased 1.4% in the first quarter 2016 due to customer growth and increased customer usage. Weather-adjusted commercial KWH sales increased 0.8% in the first quarter 2016 primarily due to customer growth. Industrial KWH sales decreased 1.0% in the first quarter 2016 primarily due to decreased sales in the chemicals, primary metals, non-manufacturing, and pipeline sectors, partially offset by increased sales in the paper and stone, clay, and glass sectors. A strong dollar, low oil prices, and weak global growth conditions have constrained growth in the industrial sector.
In the first quarter 2015, Mississippi Power updated the methodology to estimate the unbilled revenue allocation among customer classes. This change did not have a significant impact on net income. The KWH sales variances discussed above reflect an adjustment to the estimated allocation of Mississippi Power's unbilled first quarter 2015 KWH sales among customer classes that is consistent with the actual allocation in 2016. Without this adjustment, first quarter 2016 weather-adjusted residential sales increased 1.6%, weather-adjusted commercial sales increased 1.1%, and industrial KWH sales decreased 0.8% as compared to the corresponding period in 2015.
Fuel and other cost recovery revenues decreased $212 million in the first quarter 2016, respectively, when compared to the corresponding period in 2015 primarily due to a decrease in fuel prices.
Electric rates for the traditional operating companies include provisions to adjust billings for fluctuations in fuel costs, including the energy component of purchased power costs. Under these provisions, fuel revenues generally equal fuel expenses, including the energy component of purchased power costs, and do not affect net income. The
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
traditional operating companies may also have one or more regulatory mechanisms to recover other costs such as environmental and other compliance costs, storm damage, new plants, and PPAs.
Wholesale Revenues
|
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$(71) | | (15.2) |
Wholesale revenues consist of PPAs primarily with investor-owned utilities and electric cooperatives and short-term opportunity sales. Wholesale revenues from PPAs (other than solar and wind PPAs) have both capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment. Energy revenues will vary depending on fuel prices, the market prices of wholesale energy compared to the Southern Company system's generation, demand for energy within the Southern Company system's service territory, and the availability of the Southern Company system's generation. Increases and decreases in energy revenues that are driven by fuel prices are accompanied by an increase or decrease in fuel costs and do not have a significant impact on net income. Wholesale revenues at Mississippi Power include FERC-regulated municipal and rural association sales as well as market-based sales. Short-term opportunity sales are made at market-based rates that generally provide a margin above the Southern Company system's variable cost to produce the energy.
In the first quarter 2016, wholesale revenues were $396 million compared to $467 million for the corresponding period in 2015 related to a $43 million decrease in capacity revenues and a $28 million decrease in energy revenues. The decrease in capacity revenues was primarily due to a PPA remarketing from non-affiliate to affiliate at Southern Power, unit retirements at Georgia Power, milder weather and decreased usage at Mississippi Power, and the expiration of a Plant Scherer Unit 3 power sales agreement at Gulf Power. The decrease in energy revenues was primarily related to lower fuel costs.
See FUTURE EARNINGS POTENTIAL – "Other Matters" herein for additional information regarding the expiration of long-term sales agreements at Gulf Power for Plant Scherer Unit 3, which will impact future wholesale earnings.
Other Electric Revenues
|
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$18 | | 11.0 |
In the first quarter 2016, other electric revenues were $181 million compared to $163 million for the corresponding period in 2015. The increase was primarily due to an adjustment for customer temporary facilities service revenues at Georgia Power.
Fuel and Purchased Power Expenses
|
| | | | | | |
| | First Quarter 2016 vs. First Quarter 2015 |
| | (change in millions) | | (% change) |
Fuel | | $ | (301 | ) | | (24.8) |
Purchased power | | 21 |
| | 14.6 |
Total fuel and purchased power expenses | | $ | (280 | ) | | |
In the first quarter 2016, total fuel and purchased power expenses were $1.1 billion compared to $1.4 billion for the corresponding period in 2015. The decrease was primarily the result of a $223 million decrease in the average cost
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
of fuel and purchased power primarily due to lower natural gas and coal prices and a $145 million decrease in the volume of KWHs generated, partially offset by an $88 million increase in the volume of KWHs purchased.
Fuel and purchased power energy transactions at the traditional operating companies are generally offset by fuel revenues and do not have a significant impact on net income. See FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Retail Fuel Cost Recovery" herein for additional information. Fuel expenses incurred under Southern Power's PPAs are generally the responsibility of the counterparties and do not significantly impact net income.
Details of the Southern Company system's generation and purchased power were as follows:
|
| | | | |
| | First Quarter 2016 | | First Quarter 2015 |
Total generation (billions of KWHs) | | 44 | | 46 |
Total purchased power (billions of KWHs) | | 4 | | 3 |
Sources of generation (percent) — | | | | |
Coal | | 27 | | 33 |
Nuclear | | 17 | | 16 |
Gas | | 47 | | 47 |
Hydro | | 7 | | 3 |
Other Renewables | | 2 | | 1 |
Cost of fuel, generated (cents per net KWH) — | | | | |
Coal | | 3.24 | | 3.70 |
Nuclear | | 0.82 | | 0.67 |
Gas | | 2.16 | | 2.71 |
Average cost of fuel, generated (cents per net KWH) | | 2.23 | | 2.71 |
Average cost of purchased power (cents per net KWH)(*) | | 5.27 | | 7.18 |
| |
(*) | Average cost of purchased power includes fuel purchased by the Southern Company system for tolling agreements where power is generated by the provider. |
Fuel
In the first quarter 2016, fuel expense was $911 million compared to $1.2 billion for the corresponding period in 2015. The decrease was primarily due to a 21.9% decrease in the volume of KWHs generated by coal, a 20.3% decrease in the average cost of natural gas per KWH generated, a 12.4% decrease in the average cost of coal per KWH generated, and an 83.1% increase in the volume of KWHs generated by hydro facilities resulting from more rainfall.
Purchased Power
In the first quarter 2016, purchased power expense was $165 million compared to $144 million for the corresponding period in 2015. The increase was primarily due to a 50.8% increase in the volume of KWHs purchased, partially offset by a 26.6% decrease in the average cost per KWH purchased primarily as a result of lower natural gas and coal prices.
Energy purchases will vary depending on demand for energy within the Southern Company system's service territory, the market prices of wholesale energy as compared to the cost of the Southern Company system's generation, and the availability of the Southern Company system's generation.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Operations and Maintenance Expenses
|
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$(16) | | (1.4) |
In the first quarter 2016, other operations and maintenance expenses were $1.11 billion compared to $1.12 billion for the corresponding period in 2015. The decrease was primarily due to a decrease in scheduled outage and maintenance costs at generation facilities and a decrease in employee compensation and benefits including pension costs.
Depreciation and Amortization
|
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$54 | | 11.1 |
In the first quarter 2016, depreciation and amortization was $541 million compared to $487 million for the corresponding period in 2015. The increase was primarily due to a $43 million increase related to additional plant in service at the traditional operating companies and Southern Power. Also contributing to the increase, Gulf Power recorded $14 million less of a reduction in depreciation in the first three months of 2016 compared to the corresponding period in 2015, as authorized by the Florida PSC in a settlement agreement.
See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Gulf Power – Retail Base Rate Case" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Gulf Power – Retail Base Rate Case" herein for additional information.
Estimated Loss on Kemper IGCC
|
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$44 | | N/M |
N/M – Not meaningful
In the first quarter 2016 and 2015, estimated probable losses on the Kemper IGCC of $53 million and $9 million, respectively, were recorded at Southern Company. These losses reflect revisions of estimated costs expected to be incurred on Mississippi Power's construction of the Kemper IGCC in excess of the $2.88 billion cost cap established by the Mississippi PSC, net of $245 million of grants awarded to the project by the DOE under the Clean Coal Power Initiative Round 2 (Initial DOE Grants) and excluding the cost of the lignite mine and equipment, the cost of the CO2 pipeline facilities, AFUDC, and certain general exceptions, including change of law, force majeure, and beneficial capital (which exists when Mississippi Power demonstrates that the purpose and effect of the construction cost increase is to produce efficiencies that will result in a neutral or favorable effect on customers relative to the original proposal for the CPCN) (Cost Cap Exceptions). See FUTURE EARNINGS POTENTIAL – "Construction Program – Integrated Coal Gasification Combined Cycle" and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Allowance for Equity Funds Used During Construction
|
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$(10) | | (15.9) |
In the first quarter 2016, AFUDC equity was $53 million compared to $63 million for the corresponding period in 2015. The decrease was primarily due to environmental and generation projects placed in service at Alabama Power and Gulf Power.
Interest Expense, Net of Amounts Capitalized
|
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$33 | | 15.5 |
In the first quarter 2016, interest expense, net of amounts capitalized was $246 million compared to $213 million in the corresponding period in 2015. The increase was primarily due to an increase in outstanding long-term debt, partially offset by a decrease related to interest on deposits resulting from the termination of an asset purchase agreement between Mississippi Power and SMEPA in May 2015.
See Note (E) to the Condensed Financial Statements herein for additional information.
Other Income (Expense), Net |
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$(13) | | N/M |
N/M – Not meaningful
In the first quarter 2016, other income (expense), net was $(21) million compared to $(8) million for the corresponding period in 2015. The change was primarily due to Bridge Agreement-related expenses associated with the proposed Merger.
See Note (I) to the Condensed Financial Statements under "Southern Company – Proposed Merger with AGL Resources" herein for additional information.
Income Taxes |
| | |
First Quarter 2016 vs. First Quarter 2015 |
(change in millions) | | (% change) |
$(52) | | (19.0) |
In the first quarter 2016, income taxes were $222 million compared to $274 million for the corresponding period in 2015. The decrease was primarily due to increased federal income tax benefits from ITCs and PTCs at Southern Power and an increase in tax benefits related to estimated probable losses on Mississippi Power's construction of the Kemper IGCC.
See Note (G) to the Condensed Financial Statements herein for additional information.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of Southern Company's future earnings potential. The level of Southern Company's future earnings depends on numerous factors that affect the opportunities, challenges, and risks of the Southern Company system's primary business of selling electricity. These
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
factors include the traditional operating companies' ability to maintain a constructive regulatory environment that allows for the timely recovery of prudently-incurred costs during a time of increasing costs and the completion and subsequent operation of the Kemper IGCC and Plant Vogtle Units 3 and 4 as well as other ongoing construction projects. Other major factors include the profitability of Southern Power's competitive wholesale business and successful additional investments in renewable and other energy projects. Future earnings for the electricity business in the near term will depend, in part, upon maintaining and growing sales which are subject to a number of factors. These factors include weather, competition, new energy contracts with other utilities and other wholesale customers, energy conservation practiced by customers, the use of alternative energy sources by customers, the price of electricity, the price elasticity of demand, and the rate of economic growth or decline in the service territory. In addition, the level of future earnings for the wholesale business also depends on numerous factors including regulatory matters, creditworthiness of customers, total generating capacity available and related costs, future acquisitions and construction of generating facilities, the impact of tax credits from renewable energy projects, and the successful remarketing of capacity as current contracts expire. Demand for electricity is primarily driven by economic growth. The pace of economic growth and electricity demand may be affected by changes in regional and global economic conditions, which may impact future earnings.
As part of its ongoing effort to adapt to changing market conditions, Southern Company continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, partnerships, and acquisitions involving other utility or non-utility businesses or properties, disposition of certain assets, internal restructuring, or some combination thereof. Furthermore, Southern Company may engage in new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations, risks, and financial condition of Southern Company. In addition, the proposed Merger will result in a combined company that is subject to various risks that do not currently impact Southern Company.
For additional information relating to these issues, see RISK FACTORS in Item 1A and MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL of Southern Company in Item 7 of the Form 10-K.
Environmental Matters
Compliance costs related to federal and state environmental statutes and regulations could affect earnings if such costs cannot continue to be fully recovered in rates on a timely basis or through market-based contracts. Environmental compliance spending over the next several years may differ materially from the amounts estimated. The timing, specific requirements, and estimated costs could change as environmental statutes and regulations are adopted or modified, as compliance plans are revised or updated, and as legal challenges to rules are completed. Further, higher costs that are recovered through regulated rates could contribute to reduced demand for electricity, which could negatively affect results of operations, cash flows, and financial condition. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Environmental Matters" in Item 8 of the Form 10-K for additional information.
Environmental Statutes and Regulations
Air Quality
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Environmental Matters – Environmental Statutes and Regulations – Air Quality" of Southern Company in Item 7 of the Form 10-K for additional information regarding the EPA's final MATS rule and regional haze regulations.
On April 25, 2016, in response to a June 2015 U.S. Supreme Court opinion, the EPA published its supplemental finding regarding consideration of costs in support of the MATS rule. This finding does not impact MATS rule compliance requirements, costs, or deadlines, and all units within the Southern Company system that are subject to
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the MATS rule have completed the measures necessary to achieve compliance with the MATS rule by the applicable deadlines.
Also on April 25, 2016, the EPA issued proposed revisions to the regional haze regulations. The ultimate impact of the proposed revisions will depend on their ultimate adoption, implementation, and any legal challenges and cannot be determined at this time.
Retail Regulatory Matters
Retail Fuel Cost Recovery
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Retail Fuel Cost Recovery" of Southern Company in Item 7 and Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power – Rate ECR" and "Retail Regulatory Matters – Georgia Power – Fuel Cost Recovery" in Item 8 of the Form 10-K for additional information regarding retail fuel cost recovery.
The traditional operating companies each have established fuel cost recovery rates approved by their respective state PSCs. Fuel cost recovery revenues are adjusted for differences in actual recoverable fuel costs and amounts billed in current regulated rates. Accordingly, changes in the billing factor will not have a significant effect on Southern Company's revenues or net income, but will affect cash flow. The traditional operating companies continuously monitor their under or over recovered fuel cost balances and make appropriate filings with their state PSCs to adjust fuel cost recovery rates as necessary.
On April 14, 2016, Georgia Power filed a request with the Georgia PSC to decrease fuel rates by 15% effective June 1, 2016, which is expected to reduce annual billings by approximately $313 million. Georgia Power is currently scheduled to file its next fuel case by February 28, 2017. The ultimate outcome of this matter cannot be determined at this time.
Renewables
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Retail Regulatory Matters – Renewables" of Southern Company in Item 7 of the Form 10-K for additional information regarding the Southern Company system's renewables activity.
As part of the Georgia Power Advanced Solar Initiative, four PPAs totaling 149 MWs of Georgia Power's solar contracted capacity from Southern Power began in the first quarter 2016.
In November 2015, the Mississippi PSC issued orders approving three solar facilities for a combined total of approximately 105 MWs. Mississippi Power will purchase all of the energy produced by the solar facilities for the 25-year term under each of the three PPAs, two of which were finalized as of December 31, 2015 and one of which was finalized as of March 2, 2016. The projects are expected to be in service by the end of 2016 and the resulting energy purchases are expected to be recovered through Mississippi Power's fuel cost recovery mechanism.
The Florida PSC issued a final approval order on Gulf Power's Community Solar Pilot Program on April 15, 2016. The program will offer all Gulf Power customers an opportunity to voluntarily contribute to the construction and operation of a solar photovoltaic facility with electric generating capacity of up to 1 MW through annual subscriptions. The energy generated from the solar facility is expected to provide power to all of Gulf Power's customers.
Alabama Power
Alabama Power's revenues from regulated retail operations are collected through various rate mechanisms subject to the oversight of the Alabama PSC. Alabama Power currently recovers its costs from the regulated retail business primarily through its Rate RSE, Rate CNP Compliance, rate energy cost recovery, and natural disaster reserve rate. In addition, the Alabama PSC issues accounting orders to address current events impacting Alabama Power. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Alabama Power" in
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 8 of the Form 10-K for additional information regarding Alabama Power's rate mechanisms and accounting orders. The recovery balance of each regulatory clause for Alabama Power is reported in Note (B) to the Condensed Financial Statements herein.
Georgia Power
Georgia Power's revenues from regulated retail operations are collected through various rate mechanisms subject to the oversight of the Georgia PSC. Georgia Power currently recovers its costs from the regulated retail business through the 2013 ARP, which includes traditional base tariff rates, Demand-Side Management tariffs, Environmental Compliance Cost Recovery tariffs, and Municipal Franchise Fee tariffs. In addition, financing costs related to the construction of Plant Vogtle Units 3 and 4 are being collected through the NCCR tariff and fuel costs are collected through separate fuel cost recovery tariffs. See Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Fuel Cost Recovery" herein and Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" in Item 8 of the Form 10-K for additional information regarding Georgia Power's fuel cost recovery and the NCCR tariff, respectively.
Pursuant to the terms and conditions of a settlement agreement related to Southern Company's proposed acquisition of AGL Resources approved by the Georgia PSC on April 14, 2016, Georgia Power's 2013 ARP will continue in effect until December 31, 2019, and Georgia Power will be required to file its next base rate case by July 1, 2019. Furthermore, through December 31, 2019, Georgia Power and Atlanta Gas Light Company (collectively, Utilities) will retain the merger savings, net of transition costs, as defined in the settlement agreement; through December 31, 2022, net merger savings will be shared on a 60/40 basis between customers and the Utilities; thereafter, all merger savings will be retained by customers. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power" in Item 8 of the Form 10-K for additional information regarding the 2013 ARP and Note (I) to the Condensed Financial Statements under "Southern Company – Proposed Merger with AGL Resources" herein for additional information regarding the Merger.
Construction Program
Overview
The subsidiary companies of Southern Company are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. The Southern Company system intends to continue its strategy of developing and constructing new generating facilities, as well as adding or changing fuel sources for certain existing units, adding environmental control equipment, and expanding the transmission and distribution systems. For the traditional operating companies, major generation construction projects are subject to state PSC approval in order to be included in retail rates. While Southern Power generally constructs and acquires generation assets covered by long-term PPAs, any uncontracted capacity could negatively affect future earnings.
The two largest construction projects currently underway in the Southern Company system are Plant Vogtle Units 3 and 4 (45.7% ownership interest by Georgia Power in the two units, each with approximately 1,100 MWs) and Mississippi Power's 582-MW Kemper IGCC. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" herein for additional information. For additional information about costs relating to Southern Power's acquisitions that involve construction of renewable energy facilities, see Note 12 to the financial statements of Southern Company under "Southern Power – Construction Projects" in Item 8 of the Form 10-K and Note (I) to the Condensed Financial Statements under "Southern Power – Construction Projects" herein.
Also see FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" herein for additional information regarding Southern Company's capital requirements for its subsidiaries' construction programs.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Integrated Coal Gasification Combined Cycle
Mississippi Power's current cost estimate for the Kemper IGCC in total is approximately $6.58 billion, which includes approximately $5.35 billion of costs subject to the construction cost cap and is net of $137 million in additional DOE grants Mississippi Power received for the Kemper IGCC on April 8, 2016 (Additional DOE Grants), which are expected to be used to reduce future rate impacts for customers. Mississippi Power does not intend to seek any rate recovery for any related costs that exceed the $2.88 billion cost cap, net of the Initial DOE Grants and excluding the Cost Cap Exceptions. In the aggregate, Southern Company has incurred charges of $2.47 billion ($1.52 billion after tax) as a result of changes in the cost estimate above the cost cap for the Kemper IGCC through March 31, 2016. Mississippi Power's current cost estimate includes costs through September 30, 2016. In subsequent periods, any further changes in the estimated costs to complete construction of the Kemper IGCC subject to the $2.88 billion cost cap, net of the Initial DOE Grants and excluding the Cost Cap Exceptions, will be reflected in Southern Company's statements of income and these changes could be material.
The ultimate outcome of these matters cannot be determined at this time.
Civil Lawsuit
On April 26, 2016, a complaint against Mississippi Power was filed in Harrison County Circuit Court by Biloxi Freezing & Processing Inc., Gulfside Casino Partnership, and John Carlton Dean. The plaintiffs allege that Mississippi Power violated the Mississippi Unfair Trade Practices Act and concealed, falsely represented, and failed to fully disclose important facts concerning the cost and schedule of the Kemper IGCC and that Mississippi Power's alleged breaches interfered with and destroyed economically advantageous relationships between the plaintiffs and their current and prospective business associates. The plaintiffs seek unspecified actual damages and punitive damages as well as attorney's fees, costs, and interest. The plaintiffs also seek an injunction to prevent any Kemper IGCC costs from being charged to customers through electric rates. Mississippi Power believes this legal challenge has no merit; however, an adverse outcome in this proceeding could have an impact on Southern Company's results of operations, financial condition, and liquidity. Mississippi Power will vigorously defend the matter, and the final outcome of this matter cannot be determined at this time.
Other Matters
Southern Company and its subsidiaries are involved in various other matters being litigated and regulatory matters that could affect future earnings. In addition, Southern Company and its subsidiaries are subject to certain claims and legal actions arising in the ordinary course of business. The business activities of Southern Company's subsidiaries are subject to extensive governmental regulation related to public health and the environment, such as regulation of air emissions and water discharges. Litigation over environmental issues and claims of various types, including property damage, personal injury, common law nuisance, and citizen enforcement of environmental requirements, such as air quality and water standards, has occurred throughout the U.S. This litigation has included claims for damages alleged to have been caused by CO2 and other emissions, CCR, and alleged exposure to hazardous materials, and/or requests for injunctive relief in connection with such matters.
The ultimate outcome of such pending or potential litigation against Southern Company and its subsidiaries cannot be predicted at this time; however, for current proceedings not specifically reported in Note (B) to the Condensed Financial Statements herein or in Note 3 to the financial statements of Southern Company in Item 8 of the Form 10-K, management does not anticipate that the ultimate liabilities, if any, arising from such current proceedings would have a material effect on Southern Company's financial statements. See Note (B) to the Condensed Financial Statements herein for a discussion of various other contingencies, regulatory matters, and other matters being litigated which may affect future earnings potential.
The SEC is conducting a formal investigation of Southern Company and Mississippi Power concerning the estimated costs and expected in-service date of the Kemper IGCC. Southern Company and Mississippi Power believe the investigation is focused primarily on periods subsequent to 2010 and on accounting matters, disclosure controls and procedures, and internal controls over financial reporting associated with the Kemper IGCC. See ACCOUNTING POLICIES – "Application of Critical Accounting Policies and Estimates" herein for additional
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
information on the Kemper IGCC estimated construction costs and expected in-service date. Southern Company and Mississippi Power are cooperating fully with the SEC. The ultimate outcome of this matter cannot be determined at this time; however, it is not expected to have a material impact on the financial statements of Southern Company.
Through 2015, capacity revenues from long-term non-affiliate sales out of Gulf Power's ownership of Plant Scherer Unit 3 (205 MWs) represented the majority of Gulf Power's wholesale earnings. The capacity revenues associated with these contracts covering 100% of Gulf Power's ownership represented 82% of Gulf Power's wholesale capacity revenues in 2015. Due to the expiration of a wholesale contract at the end of 2015 and another wholesale contract at the end of May 2016, Gulf Power's remaining contracted sales from the unit from June 2016 through 2019 will cover approximately 24% of the unit. The expiration of the contract in 2015 and the scheduled future expiration of the remaining contracts are not expected to have a material impact on Southern Company's earnings. The alternatives Gulf Power is actively evaluating include, without limitation, rededication of the asset to serve retail customers for whom it was originally planned and built, replacement long-term wholesale contracts or other sales into the wholesale market, or an asset sale. On May 5, 2016, Gulf Power delivered a letter to the Florida PSC requesting recognition of Gulf Power's ownership in Plant Scherer Unit 3 as being in service to retail customers when and as the contracts expire. The ultimate outcome of this matter cannot be determined at this time.
ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Southern Company prepares its consolidated financial statements in accordance with GAAP. Significant accounting policies are described in Note 1 to the financial statements of Southern Company in Item 8 of the Form 10-K. In the application of these policies, certain estimates are made that may have a material impact on Southern Company's results of operations and related disclosures. Different assumptions and measurements could produce estimates that are significantly different from those recorded in the financial statements. See MANAGEMENT'S DISCUSSION AND ANALYSIS – ACCOUNTING POLICIES – "Application of Critical Accounting Policies and Estimates" of Southern Company in Item 7 of the Form 10-K for a complete discussion of Southern Company's critical accounting policies and estimates related to Electric Utility Regulation, Asset Retirement Obligations, Pension and Other Postretirement Benefits, and Contingent Obligations.
Kemper IGCC Estimated Construction Costs, Project Completion Date, and Rate Recovery
During 2016, Mississippi Power further revised its cost estimate to complete construction and start-up of the Kemper IGCC to an amount that exceeds the $2.88 billion cost cap, net of the Initial DOE Grants and excluding the Cost Cap Exceptions. Mississippi Power does not intend to seek any rate recovery for any costs related to the construction of the Kemper IGCC that exceed the $2.88 billion cost cap, net of the Initial DOE Grants and excluding the Cost Cap Exceptions.
As a result of the revisions to the cost estimate, Southern Company recorded total pre-tax charges to income for the estimated probable losses on the Kemper IGCC of $53 million ($33 million after tax) in the first quarter 2016, $183 million ($113 million after tax) in the fourth quarter 2015, $150 million ($93 million after tax) in the third quarter 2015, $23 million ($14 million after tax) in the second quarter 2015, $9 million ($6 million after tax) in the first quarter 2015, $70 million ($43 million after tax) in the fourth quarter 2014, $418 million ($258 million after tax) in the third quarter 2014, $380 million ($235 million after tax) in the first quarter 2014, $40 million ($25 million after tax) in the fourth quarter 2013, $150 million ($93 million after tax) in the third quarter 2013, $450 million ($278 million after tax) in the second quarter 2013, and $540 million ($333 million after tax) in the first quarter 2013. In the aggregate, Southern Company has incurred charges of $2.47 billion ($1.52 billion after tax) as a result of changes in the cost estimate above the cost cap for the Kemper IGCC through March 31, 2016.
Mississippi Power has experienced, and may continue to experience, material changes in the cost estimate for the Kemper IGCC. In subsequent periods, any further changes in the estimated costs to complete construction and start-up of the Kemper IGCC subject to the $2.88 billion cost cap, net of the Initial DOE Grants and excluding the Cost Cap Exceptions, will be reflected in Southern Company's statements of income and these changes could be material.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Any further cost increases and/or extensions of the in-service date with respect to the Kemper IGCC may result from factors including, but not limited to, labor costs and productivity, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contractor or supplier delay, non-performance under operating or other agreements, operational readiness, including specialized operator training and required site safety programs, unforeseen engineering or design problems, start-up activities for this first-of-a-kind technology (including, but not limited to, major equipment failure and system integration), and/or operational performance (including, but not limited to, additional costs to satisfy any operational parameters ultimately adopted by the Mississippi PSC).
Mississippi Power's revised cost estimate includes costs through September 30, 2016. Any extension of the in-service date beyond September 30, 2016 is currently estimated to result in additional base costs of approximately $25 million to $35 million per month, which includes maintaining necessary levels of start-up labor, materials, and fuel, as well as operational resources required to execute start-up and commissioning activities. However, additional costs may be required for remediation of any further equipment and/or design issues identified. Any extension of the in-service date with respect to the Kemper IGCC beyond September 30, 2016 would also increase costs for the Cost Cap Exceptions, which are not subject to the $2.88 billion cost cap established by the Mississippi PSC. These costs include AFUDC, which is currently estimated to total approximately $14 million per month, as well as carrying costs and operating expenses on Kemper IGCC assets placed in service and consulting and legal fees of approximately $2 million per month.
Given the significant judgment involved in estimating the future costs to complete construction and start-up, the project completion date, the ultimate rate recovery for the Kemper IGCC, and the potential impact on Southern Company's results of operations, Southern Company considers these items to be critical accounting estimates. See Note 3 to the financial statements of Southern Company under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Integrated Coal Gasification Combined Cycle" herein for additional information.
Recently Issued Accounting Standards
On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged and there is no change to the accounting for existing leveraged leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Southern Company is currently evaluating the new standard and has not yet determined its ultimate impact; however, adoption of ASU 2016-02 is expected to have a significant impact on Southern Company's balance sheet.
On March 30, 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes the accounting for income taxes and the cash flow presentation for share-based payment award transactions. Most significantly, entities are required to recognize all excess tax benefits and deficiencies related to the exercise or vesting of stock compensation as income tax expense or benefit in the income statement. Southern Company currently recognizes any excess tax benefits and deficiencies related to the exercise and vesting of stock compensation in additional paid-in capital. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. Southern Company is currently evaluating the new standard and has not yet determined its ultimate impact.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Overview
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Overview" of Southern Company in Item 7 of the Form 10-K for additional information. Southern Company's financial condition remained stable at March 31, 2016. Through March 31, 2016, Southern Company has incurred non-recoverable cash expenditures of $2.11 billion and is expected to incur approximately $0.36 billion in additional non-recoverable cash expenditures through completion of the Kemper IGCC. Southern Company intends to continue to monitor its access to short-term and long-term capital markets as well as bank credit agreements to meet future capital and liquidity needs. See "Capital Requirements and Contractual Obligations," "Sources of Capital," and "Financing Activities" herein for additional information.
Net cash provided from operating activities totaled $0.9 billion for the first three months of 2016 and the corresponding period in 2015. Net cash used for investing activities totaled $2.2 billion for the first three months of 2016 primarily due to gross property additions for construction of generation, transmission, and distribution facilities and installation of equipment to comply with environmental standards. Net cash provided from financing activities totaled $0.7 billion for the first three months of 2016 primarily due to issuances of long-term debt, partially offset by redemptions of short-term and long-term debt and common stock dividend payments. Fluctuations in cash flow from financing activities vary from period to period based on capital needs and the maturity or redemption of securities.
Significant balance sheet changes for the first three months of 2016 include an increase of $1.4 billion in total property, plant, and equipment to comply with environmental standards and construction of generation, transmission, and distribution facilities; a $0.7 billion decrease in cash and cash equivalents due to the funding of acquisitions and construction of renewable energy projects; a $1.1 billion increase in short-term and long-term debt to fund the subsidiaries' continuous construction programs and for other general corporate purposes; a $0.3 billion decrease in accounts payable due to the timing of vendor payments; and a $0.3 billion decrease in accrued compensation due to the timing of payments.
At the end of the first quarter 2016, the market price of Southern Company's common stock was $51.73 per share (based on the closing price as reported on the New York Stock Exchange) and the book value was $22.65 per share, representing a market-to-book ratio of 228%, compared to $46.79, $22.59, and 207%, respectively, at the end of 2015. Southern Company's common stock dividend for the first quarter 2016 was $0.5425 per share compared to $0.5250 per share in the first quarter 2015.
Capital Requirements and Contractual Obligations
See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Capital Requirements and Contractual Obligations" of Southern Company in Item 7 of the Form 10-K for a description of Southern Company's capital requirements for the construction programs of the Southern Company system, including estimated capital expenditures for new generating facilities and to comply with existing environmental statutes and regulations, scheduled maturities of long-term debt, as well as related interest, derivative obligations, preferred and preference stock dividends, leases, purchase commitments, trust funding requirements, and unrecognized tax benefits. Approximately $2.5 billion will be required through March 31, 2017 to fund maturities and announced redemptions of long-term debt. See "Sources of Capital" herein for additional information.
In addition to the cash consideration for the Merger to be paid by Southern Company at the effective time of the Merger, Southern Company will also assume AGL Resources' outstanding indebtedness (approximately $4.3 billion at March 31, 2016). See OVERVIEW herein for additional information regarding the Merger as well as Note (I) to the Condensed Financial Statements herein.
The Southern Company system's construction program is currently estimated to total $7.3 billion for 2016, $5.2 billion for 2017, and $5.5 billion for 2018. These amounts include expenditures of approximately $0.7 billion
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
related to the construction and start-up of the Kemper IGCC in 2016; $0.6 billion, $0.7 billion, and $0.4 billion to continue construction on Plant Vogtle Units 3 and 4 in 2016, 2017, and 2018, respectively; and $2.2 billion, $0.9 billion, and $1.4 billion for Southern Power's acquisitions and/or construction of new generating facilities in 2016, 2017, and 2018, respectively.
The construction programs are subject to periodic review and revision, and actual construction costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in load projections; changes in environmental statutes and regulations; the outcome of any legal challenges to the environmental rules; changes in generating plants, including unit retirements and replacements and adding or changing fuel sources at existing units, to meet regulatory requirements; changes in FERC rules and regulations; PSC approvals; changes in the expected environmental compliance program; changes in legislation; the cost and efficiency of construction labor, equipment, and materials; project scope and design changes; storm impacts; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Additionally, planned expenditures for plant acquisitions may vary due to market opportunities and Southern Power's ability to execute its growth strategy. See Note 12 to the financial statements of Southern Company under "Southern Power" in Item 8 of the Form 10-K and Note (I) to the Condensed Financial Statements under "Southern Power" herein for additional information regarding Southern Power's plant acquisitions. See Note 3 to the financial statements of Southern Company under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" and "Integrated Coal Gasification Combined Cycle" herein for information regarding additional factors that may impact construction expenditures.
Sources of Capital
Southern Company intends to meet its future capital needs through operating cash flows, short-term debt, term loans, and external security issuances. Equity capital can be provided from any combination of Southern Company's stock plans, private placements, or public offerings. The amount and timing of additional equity capital and debt issuances in 2016, as well as in subsequent years, will be contingent on Southern Company's investment opportunities and the Southern Company system's capital requirements.
Except as described herein, the traditional operating companies and Southern Power plan to obtain the funds required for construction and other purposes from operating cash flows, external security issuances, term loans, short-term borrowings, and equity contributions or loans from Southern Company. However, the amount, type, and timing of any future financings, if needed, will depend upon prevailing market conditions, regulatory approval, and other factors. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" of Southern Company in Item 7 of the Form 10-K for additional information.
In addition, Georgia Power may make borrowings through a loan guarantee agreement (Loan Guarantee Agreement) between Georgia Power and the DOE, the proceeds of which may be used to reimburse Georgia Power for Eligible Project Costs incurred in connection with its construction of Plant Vogtle Units 3 and 4. Under the Loan Guarantee Agreement, the DOE agreed to guarantee borrowings of up to $3.46 billion (not to exceed 70% of Eligible Project Costs) to be made by Georgia Power under a multi-advance credit facility (FFB Credit Facility) among Georgia Power, the DOE, and the FFB. See Note 6 to the financial statements of Southern Company under "DOE Loan Guarantee Borrowings" in Item 8 of the Form 10-K for additional information regarding the Loan Guarantee Agreement and Note (B) to the Condensed Financial Statements under "Retail Regulatory Matters – Georgia Power – Nuclear Construction" herein for additional information regarding Plant Vogtle Units 3 and 4.
Eligible Project Costs incurred through March 31, 2016 would allow for borrowings of up to $2.5 billion under the FFB Credit Facility, of which Georgia Power has borrowed $2.2 billion.
Mississippi Power received $245 million of Initial DOE Grants in prior years that were used for the construction of the Kemper IGCC. An additional $25 million of grants from the DOE is expected to be received for commercial operation of the Kemper IGCC. On April 8, 2016, Mississippi Power received approximately $137 million in
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Additional DOE Grants for the Kemper IGCC, which are expected to be used to reduce future rate impacts for customers. In addition, see Note 3 to the financial statements of Southern Company under "Integrated Coal Gasification Combined Cycle" in Item 8 of the Form 10-K for information regarding legislation related to the securitization of certain costs of the Kemper IGCC.
As of March 31, 2016, Southern Company's current liabilities exceeded current assets by $2.4 billion, primarily due to long-term debt that is due within one year, including approximately $0.9 billion at the parent company, $0.2 billion at Alabama Power, $0.5 billion at Georgia Power, $0.1 billion at Gulf Power, $0.3 billion at Mississippi Power, and $0.4 billion at Southern Power. To meet short-term cash needs and contingencies, Southern Company has substantial cash flow from operating activities and access to capital markets and financial institutions. Southern Company, the traditional operating companies, and Southern Power intend to utilize operating cash flows, as well as commercial paper, lines of credit, bank notes, and securities issuances, as market conditions permit, as well as, under certain circumstances for the traditional operating companies and Southern Power, equity contributions and/or loans from Southern Company to meet their short-term capital needs. In addition, for the remainder of 2016, Georgia Power expects to utilize borrowings through the FFB Credit Facility as an additional source of long-term borrowed funds.
At March 31, 2016, Southern Company and its subsidiaries had approximately $0.8 billion of cash and cash equivalents. Committed credit arrangements with banks at March 31, 2016 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expires | | | | Executable Term Loans | | Due Within One Year |
Company | 2016 | 2017 | 2018 | 2020 | | Total | | Unused | | One Year | | Two Years | | Term Out | | No Term Out |
| | | | (in millions) | | (in millions) | | (in millions) |
Southern Company (a) | $ | — |
| $ | — |
| $ | 1,000 |
| $ | 1,250 |
| | $ | 2,250 |
| | $ | 2,250 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Alabama Power | 40 |
| — |
| 500 |
| 800 |
| | 1,340 |
| | 1,340 |
| | — |
| | — |
| | — |
| | 40 |
|
Georgia Power | — |
| — |
| — |
| 1,750 |
| | 1,750 |
| | 1,732 |
| | — |
| | — |
| | — |
| | — |
|
Gulf Power | 75 |
| 40 |
| 165 |
| — |
| | 280 |
| | 280 |
| | 45 |
| | — |
| | 45 |
| | 40 |
|
Mississippi Power | 205 |
| — |
| — |
| — |
| | 205 |
| | 180 |
| | 30 |
| | 15 |
| | 45 |
| | 160 |
|
Southern Power Company (b) | — |
| — |
| — |
| 600 |
| | 600 |
| | 560 |
| | — |
| | — |
| | — |
| | — |
|
Other | 70 |
| — |
| — |
| — |
| | 70 |
| | 70 |
| | 20 |
| | — |
| | 20 |
| | 50 |
|
Total | $ | 390 |
| $ | 40 |
| $ | 1,665 |
| $ | 4,400 |
| | $ | 6,495 |
| | $ | 6,412 |
| | $ | 95 |
| | $ | 15 |
| | $ | 110 |
| | $ | 290 |
|
| |
(a) | Excludes the $8.1 billion Bridge Agreement entered into in September 2015 that will be funded only to the extent necessary to provide financing for the Merger as discussed herein. |
| |
(b) | Excludes credit agreements (Project Credit Facilities) assumed with the acquisition of certain solar facilities, which are non-recourse to Southern Power Company, the proceeds of which are being used to finance project costs related to such solar facilities currently under construction. See Note (I) to the Condensed Financial Statements under "Southern Power" herein for additional information. |
See Note 6 to the financial statements of Southern Company under "Bank Credit Arrangements" in Item 8 of the Form 10-K and Note (E) to the Condensed Financial Statements under "Bank Credit Arrangements" herein for additional information.
Most of these bank credit arrangements, as well as the term loan arrangements of Southern Company, Alabama Power, Mississippi Power, and Southern Power, contain covenants that limit debt levels and contain cross acceleration or cross default provisions to other indebtedness (including guarantee obligations) that are restricted only to the indebtedness of the individual company. Such cross default provisions to other indebtedness would trigger an event of default if the applicable borrower defaulted on indebtedness or guarantee obligations over a specified threshold. Such cross acceleration provisions to other indebtedness would trigger an event of default if the applicable borrower defaulted on indebtedness, the payment of which was then accelerated. Southern Company, the traditional operating companies, and Southern Power Company are currently in compliance with all such covenants. None of the bank credit arrangements contain material adverse change clauses at the time of borrowings.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Subject to applicable market conditions, Southern Company and its subsidiaries expect to renew or replace their bank credit arrangements as needed, prior to expiration. In connection therewith, Southern Company and its subsidiaries may extend the maturity dates and/or increase or decrease the lending commitments thereunder.
A portion of the unused credit with banks is allocated to provide liquidity support to the traditional operating companies' pollution control revenue bonds and commercial paper programs. The amount of variable rate pollution control revenue bonds outstanding requiring liquidity support as of March 31, 2016 was approximately $1.8 billion. In addition, at March 31, 2016, the traditional operating companies had approximately $269 million of fixed rate pollution control revenue bonds outstanding that were required to be reoffered within the next 12 months.
Southern Company intends to fund the cash consideration for the Merger using a mix of debt and equity. Southern Company finances its capital needs on a portfolio basis and expects to issue a minimum of $8.0 billion in debt prior to closing the Merger and a minimum of $1.2 billion in equity during 2016. This capital is expected to provide funding for the Merger, the proposed acquisition of PowerSecure, and Southern Power and other Southern Company system capital projects. Total capital raised in 2016 may increase due to cash needed at the closing of the Merger, settlement of hedges, and incremental investment opportunities, including additional Southern Power projects in excess of its current capital plans. Southern Company expects to issue the debt to fund the cash consideration for the Merger in several tranches including long-dated maturities. The amount of debt issued at each maturity will depend on prevailing market conditions at the time of the offering and other factors. In addition, Southern Company entered into the $8.1 billion Bridge Agreement on September 30, 2015 to provide financing for the Merger in the event long-term financing is not available. See MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Sources of Capital" of Southern Company in Item 7 of the Form 10-K for additional information.
Southern Company, the traditional operating companies, and Southern Power make short-term borrowings primarily through commercial paper programs that have the liquidity support of the committed bank credit arrangements described above, excluding the Bridge Agreement. Southern Company, the traditional operating companies, and Southern Power may also borrow through various other arrangements with banks. Short-term borrowings are included in notes payable in the balance sheets.
Details of short-term borrowings were as follows:
|
| | | | | | | | | | | | | | | | | | |
| | Short-term Debt at March 31, 2016 | | Short-term Debt During the Period(*) |
| | Amount Outstanding | | Weighted Average Interest Rate | | Average Amount Outstanding | | Weighted Average Interest Rate | | Maximum Amount Outstanding |
| | (in millions) | | | | (in millions) | | | | (in millions) |
Commercial paper | | $ | 757 |
| | 0.8 | % | | $ | 853 |
| | 0.8 | % | | $ | 1,233 |
|
Short-term bank debt | | 25 |
| | 2.1 | % | | 375 |
| | 1.9 | % | | 500 |
|
Total | | $ | 782 |
| | 0.9 | % | | $ | 1,228 |
| | 1.0 | % | | |
| |
(*) | Average and maximum amounts are based upon daily balances during the three-month period ended March 31, 2016. |
In addition to the short-term borrowings in the table above, the Project Credit Facilities had total amounts outstanding as of March 31, 2016 of $413 million at a weighted average interest rate of 1.99%. For the three months ended March 31, 2016, these credit agreements had a maximum amount outstanding of $413 million, and an average amount outstanding of $260 million at a weighted average interest rate of 1.99%.
Southern Company believes the need for working capital can be adequately met by utilizing commercial paper programs, lines of credit, bank notes, and operating cash flows.
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Credit Rating Risk
Southern Company and its subsidiaries do not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade.
There are certain contracts that could require collateral, but not accelerated payment, in the event of a credit rating change of certain subsidiaries to BBB and/or Baa2 or below. These contracts are for physical electricity purchases and sales, fuel purchases, fuel transportation and storage, energy price risk management, transmission, interest rate management, and construction of new generation at Plant Vogtle Units 3 and 4.
The maximum potential collateral requirements under these contracts at March 31, 2016 were as follows:
|
| | | |
Credit Ratings | Maximum Potential Collateral Requirements |
| (in millions) |
At BBB and/or Baa2 | $ | 12 |
|
At BBB- and/or Baa3 | $ | 511 |
|
Below BBB- and/or Baa3 | $ | 2,335 |
|
Generally, collateral may be provided by a Southern Company guaranty, letter of credit, or cash. Additionally, a credit rating downgrade could impact the ability of Southern Company and its subsidiaries to access capital markets, and would be likely to impact the cost at which they do so.
Financing Activities
During the first three months of 2016, Southern Company issued approximately 6.6 million shares of common stock primarily through the employee equity compensation plan and received proceeds of approximately $270 million. Southern Company may satisfy its obligations with respect to the plans in several ways, including through using newly issued shares or treasury shares or acquiring shares on the open market through independent plan administrators.
The following table outlines the long-term debt financing activities for Southern Company and its subsidiaries for the first three months of 2016:
|
| | | | | | | | | | | | | | | | | | | |
Company(a) | Senior Note Issuances | | Senior Note Maturities and Redemptions | | Revenue Bond Maturities, Redemptions, and Repurchases | | Other Long-Term Debt Issuances | | Other Long-Term Debt Redemptions and Maturities(b) |
| (in millions) |
Alabama Power | $ | 400 |
| | $ | 200 |
| | $ | — |
| | $ | 45 |
| | $ | — |
|
Georgia Power | 650 |
| | 250 |
| | 4 |
| | — |
| | 1 |
|
Mississippi Power | — |
| | — |
| | — |
| | 1,100 |
| | 426 |
|
Southern Power | — |
| | — |
| | — |
| | 2 |
| | 3 |
|
Other | — |
| | — |
| | — |
| | — |
| | 4 |
|
Elimination(c) | — |
| | — |
| | — |
| | (200 | ) | | — |
|
Total | $ | 1,050 |
| | $ | 450 |
| | $ | 4 |
| | $ | 947 |
| | $ | 434 |
|
| |
(a) | Southern Company and Gulf Power did not issue or redeem any long-term debt during the first three months of 2016. |
| |
(b) | Includes reductions in capital lease obligations resulting from cash payments under capital leases. |
| |
(c) | Intercompany loans from Southern Company to Mississippi Power eliminated in Southern Company's Consolidated Financial Statements. |
SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In February 2016, Southern Company entered into forward-starting interest rate swaps to hedge exposure to interest rate changes related to anticipated debt issuances. The notional amount of the swaps totaled $700 million.
Except as described herein, Southern Company's subsidiaries used the proceeds of the debt issuances shown in the table above for their redemptions and maturities shown in the table above, to repay short-term indebtedness, and for general corporate purposes, including their continuous construction programs and, for Southern Power, its growth strategy.
On March 8, 2016, Mississippi Power entered into an unsecured term loan agreement for an aggregate amount of $1.2 billion to repay existing indebtedness and for other general corporate purposes. Mississippi Power borrowed $900 million under the term loan agreement and has the right to borrow the remaining $300 million on or before October 15, 2016, upon satisfaction of certain customary conditions. Mississippi Power used the initial proceeds to repay $900 million in maturing bank notes on March 8, 2016 and expects the remaining $300 million to be used to repay senior notes maturing in October 2016. The term loan pursuant to this agreement matures on April 1, 2018 and bears interest based on one-month LIBOR.
During the three months ended March 31, 2016, Southern Power's subsidiaries borrowed $276 million pursuant to the Project Credit Facilities at a weighted average interest rate of 1.99%.
Subsequent to March 31, 2016, Southern Power's subsidiaries borrowed $187 million pursuant to the Project Credit Facilities at a weighted average interest rate of 1.93%.
Also subsequent to March 31, 2016, Gulf Power announced the redemption in May 2016 of $125 million aggregate principal amount of its Series 2011A 5.75% Senior Notes due June 1, 2051.
In addition to any financings that may be necessary to meet capital requirements and contractual obligations, Southern Company and its subsidiaries plan to continue, when economically feasible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit.
PART I
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
During the three months ended March 31, 2016, there were no material changes to each registrant's disclosures about market risk. For an in-depth discussion of each registrant's market risks, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FINANCIAL CONDITION AND LIQUIDITY – "Market Price Risk" of each registrant in Item 7 of the Form 10-K and Note 1 to the financial statements of each registrant under "Financial Instruments," Note 11 to the financial statements of Southern Company, Alabama Power, and Georgia Power, Note 10 to the financial statements of Gulf Power and Mississippi Power, and Note 9 to the financial statements of Southern Power in Item 8 of the Form 10-K. Also, see Note (H) to the Condensed Financial Statements herein for information relating to derivative instruments.
Item 4. Controls and Procedures.
| |
(a) | Evaluation of disclosure controls and procedures. |
As of the end of the period covered by this Quarterly Report on Form 10-Q, Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Southern Power Company conducted separate evaluations under the supervision and with the participation of each company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon these evaluations, the Chief Executive Officer and the Chief Financial Officer, in each case, concluded that the disclosure controls and procedures are effective.
| |
(b) | Changes in internal controls over financial reporting. |
There have been no changes in Southern Company's, Alabama Power's, Georgia Power's, Gulf Power's, Mississippi Power's, or Southern Power Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the first quarter 2016 that have materially affected or are reasonably likely to materially affect Southern Company's, Alabama Power's, Georgia Power's, Gulf Power's, Mississippi Power's, or Southern Power Company's internal control over financial reporting.
ALABAMA POWER COMPANY
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2016 | | 2015 |
| (in millions) |
Operating Revenues: | | | |
Retail revenues | $ | 1,193 |
| | $ | 1,268 |
|
Wholesale revenues, non-affiliates | 63 |
| | 65 |
|
Wholesale revenues, affiliates | 22 |
| | 15 |
|
Other revenues | 53 |
| | 53 |
|
Total operating revenues | 1,331 |
| | 1,401 |
|
Operating Expenses: | | | |
Fuel | 268 |
| | 310 |
|
Purchased power, non-affiliates | 36 |
| | 41 |
|
Purchased power, affiliates | 33 |
| | 53 |
|
Other operations and maintenance | 392 |
| | 399 |
|
Depreciation and amortization | 172 |
| | 158 |
|
Taxes other than income taxes | 97 |
| | 94 |
|
Total operating expenses | 998 |
| | 1,055 |
|
Operating Income | 333 |
| | 346 |
|
Other Income and (Expense): | | | |
Allowance for equity funds used during construction | 10 |
| | 15 |
|
Interest expense, net of amounts capitalized | (73 | ) | | (65 | ) |
Other income (expense), net | (8 | ) | | (4 | ) |
Total other income and (expense) | (71 | ) | | (54 | ) |
Earnings Before Income Taxes | 262 |
| | 292 |
|
Income taxes | 103 |
| | 113 |
|
Net Income | 159 |
| | 179 |
|
Dividends on Preferred and Preference Stock | 4 |
| | 10 |
|
Net Income After Dividends on Preferred and Preference Stock | $ | 155 |
| | $ | 169 |
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2016 | | 2015 |
| (in millions) |
Net Income | $ | 159 |
| | $ | 179 |
|
Other comprehensive income (loss): | | | |
Qualifying hedges: | | | |
Changes in fair value, net of tax of $(1) and $(2), respectively | (2 | ) | | (4 | ) |
Reclassification adjustment for amounts included in net income, net of tax of $1 and $-, respectively | 1 |
| | — |
|
Total other comprehensive income (loss) | (1 | ) | | (4 | ) |
Comprehensive Income | $ | 158 |
| | $ | 175 |
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2016 | | 2015 |
| (in millions) |
Operating Activities: | | | |
Net income | $ | 159 |
| | $ | 179 |
|
Adjustments to reconcile net income to net cash provided from operating activities — | | | |
Depreciation and amortization, total | 211 |
| | 196 |
|
Deferred income taxes | 68 |
| | 16 |
|
Allowance for equity funds used during construction | (10 | ) | | (15 | ) |
Other, net | (3 | ) | | 2 |
|
Changes in certain current assets and liabilities — | | | |
-Receivables | 191 |
| | (3 | ) |
-Fossil fuel stock | (27 | ) | | — |
|
-Materials and supplies | (8 | ) | | 12 |
|
-Other current assets | (79 | ) | | (80 | ) |
-Accounts payable | (143 | ) | | (229 | ) |
-Accrued taxes | 64 |
| | 246 |
|
-Accrued compensation | (75 | ) | | (89 | ) |
-Retail fuel cost over recovery | (1 | ) | | 34 |
|
-Other current liabilities | (8 | ) | | 21 |
|
Net cash provided from operating activities | 339 |
| | 290 |
|
Investing Activities: | | | |
Property additions | (313 | ) | | (325 | ) |
Nuclear decommissioning trust fund purchases | (105 | ) | | (129 | ) |
Nuclear decommissioning trust fund sales | 105 |
| | 129 |
|
Cost of removal, net of salvage | (31 | ) | | (13 | ) |
Change in construction payables | (15 | ) | | 34 |
|
Other investing activities | (9 | ) | | (9 | ) |
Net cash used for investing activities | (368 | ) | | (313 | ) |
Financing Activities: | | | |
Proceeds — | | | |
Senior notes issuances | 400 |
| | 550 |
|
Capital contributions from parent company | 236 |
| | 6 |
|
Other long-term debt issuances | 45 |
| | — |
|
Redemptions — Senior notes | (200 | ) | | (250 | ) |
Payment of common stock dividends | (191 | ) | | (143 | ) |
Other financing activities | (11 | ) | | (18 | ) |
Net cash provided from financing activities | 279 |
| | 145 |
|
Net Change in Cash and Cash Equivalents | 250 |
| | 122 |
|
Cash and Cash Equivalents at Beginning of Period | 194 |
| | 273 |
|
Cash and Cash Equivalents at End of Period | $ | 444 |
| | $ | 395 |
|
Supplemental Cash Flow Information: | | | |
Cash paid (received) during the period for -- | | | |
Interest (net of $4 and $5 capitalized for 2016 and 2015, respectively) | $ | 76 |
| | $ | 68 |
|
Income taxes, net | (162 | ) | | (136 | ) |
Noncash transactions — Accrued property additions at end of period | 106 |
| | 41 |
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
| | | | | | | | |
Assets | | At March 31, 2016 | | At December 31, 2015 |
| | (in millions) |
Current Assets: | | | | |
Cash and cash equivalents | | $ | 444 |
| | $ | 194 |
|
Receivables — | | | | |
Customer accounts receivable | | 311 |
| | 332 |
|
Unbilled revenues | | 113 |
| | 119 |
|
Under recovered regulatory clause revenues | | 22 |
| | 43 |
|
Income taxes receivable, current | | — |
| | 142 |
|
Other accounts and notes receivable | | 25 |
| | 20 |
|
Affiliated companies | | 38 |
| | 50 |
|
Accumulated provision for uncollectible accounts | | (10 | ) | | (10 | ) |
Fossil fuel stock, at average cost | | 266 |
| | 239 |
|
Materials and supplies, at average cost | | 406 |
| | 398 |
|
Vacation pay | | 67 |
| | 66 |
|
Prepaid expenses | | 129 |
| | 83 |
|
Other regulatory assets, current | | 99 |
| | 115 |
|
Other current assets | | 10 |
| | 10 |
|
Total current assets | | 1,920 |
| | 1,801 |
|
Property, Plant, and Equipment: | | | | |
In service | | 25,187 |
| | 24,750 |
|
Less accumulated provision for depreciation | | 8,791 |
| | 8,736 |
|
Plant in service, net of depreciation | | 16,396 |
| | 16,014 |
|
Nuclear fuel, at amortized cost | | 359 |
| | 363 |
|
Construction work in progress | | 550 |
| | 801 |
|
Total property, plant, and equipment | | 17,305 |
| | 17,178 |
|
Other Property and Investments: | | | | |
Equity investments in unconsolidated subsidiaries | | 68 |
| | 71 |
|
Nuclear decommissioning trusts, at fair value | | 746 |
| | 737 |
|
Miscellaneous property and investments | | 99 |
| | 96 |
|
Total other property and investments | | 913 |
| | 904 |
|
Deferred Charges and Other Assets: | | | | |
Deferred charges related to income taxes | | 520 |
| | 522 |
|
Deferred under recovered regulatory clause revenues | | 105 |
| | 99 |
|
Other regulatory assets, deferred | | 1,105 |
| | 1,114 |
|
Other deferred charges and assets | | 109 |
| | 103 |
|
Total deferred charges and other assets | | 1,839 |
| | 1,838 |
|
Total Assets | | $ | 21,977 |
| | $ | 21,721 |
|
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
|
| | | | | | | | |
Liabilities and Stockholder's Equity | | At March 31, 2016 | | At December 31, 2015 |
| | (in millions) |
Current Liabilities: | | | | |
Securities due within one year | | $ | 200 |
| | $ | 200 |
|
Accounts payable — | | | | |
Affiliated | | 258 |
| | 278 |
|
Other | | 271 |
| | 410 |
|
Customer deposits | | 88 |
| | 88 |
|
Accrued taxes — | | | | |
Accrued income taxes | | 11 |
| | — |
|
Other accrued taxes | | 62 |
| | 38 |
|
Accrued interest | | 65 |
| | 73 |
|
Accrued vacation pay | | 55 |
| | 55 |
|
Accrued compensation | | 47 |
| | 119 |
|
Liabilities from risk management activities | | 37 |
| | 55 |
|
Other regulatory liabilities, current | | 175 |
| | 240 |
|
Other current liabilities | | 39 |
| | 39 |
|
Total current liabilities | | 1,308 |
| | 1,595 |
|
Long-term Debt | | 6,894 |
| | 6,654 |
|
Deferred Credits and Other Liabilities: | | | | |
Accumulated deferred income taxes | | 4,306 |
| | 4,241 |
|
Deferred credits related to income taxes | | 69 |
| | 70 |
|
Accumulated deferred investment tax credits | | 116 |
| | 118 |
|
Employee benefit obligations | | 377 |
| | 388 |
|
Asset retirement obligations | | 1,461 |
| | 1,448 |
|
Other cost of removal obligations | | 705 |
| | 722 |
|
Other regulatory liabilities, deferred | | 119 |
| | 136 |
|
Deferred over recovered regulatory clause revenues | | 64 |
| | — |
|
Other deferred credits and liabilities | | 78 |
| | 76 |
|
Total deferred credits and other liabilities | | 7,295 |
| | 7,199 |
|
Total Liabilities | | 15,497 |
| | 15,448 |
|
Redeemable Preferred Stock | | 85 |
| | 85 |
|
Preference Stock | | 196 |
| | 196 |
|
Common Stockholder's Equity: | | | | |
Common stock, par value $40 per share -- | | | | |
Authorized - 40,000,000 shares | | | | |
Outstanding - 30,537,500 shares | | 1,222 |
| | 1,222 |
|
Paid-in capital | | 2,585 |
| | 2,341 |
|
Retained earnings | | 2,425 |
| | 2,461 |
|
Accumulated other comprehensive loss | | (33 | ) | | (32 | ) |
Total common stockholder's equity | | 6,199 |
| | 5,992 |
|
Total Liabilities and Stockholder's Equity | | $ | 21,977 |
| | $ | |