Mississippi Power rate hike is sole good news for ailing Southern Company
The Southern Company held an earnings call Wednesday and the sole good news was a rate hike approved Tuesday by the Mississippi Public Service Commission.
Southern's subsidiary Mississippi Power had its performance evaluation plan or PEP increase approved by the PSC, along with a fuel cost increase. Mississippi Power customers using 1,000 kilowatt hours per month would see about an $11 increase, the first PEP rate hike since 2013.
The PEP plan covers the utility's capital costs such as transmission lines, substations and generating plants plus staff costs.
The company agreed to not collect $8.5 million in costs, including $3.3 million for use of the Southern Company's corporate jet fleet, from its customers until the PSC and separate Public Utilities Staff can conduct a more thorough evaluation. The company will also forgo submitting any new PEP requests until 2021.
It was the sole good news for the Southern Company, which reported a $1.1 billion pre-tax loss on the new reactors at Georgia's Plant Vogtle. The announcement clouded solid earnings numbers from Southern, which exceeded its second-quarter expectations.
If not for Vogtle and continuing charges for Mississippi Power's Kemper Project plant, which is now operational as a natural gas facility, earnings for the second quarter and the six months prior would've been 80 cents and $1.69 per share respectively. This time last year, those figures were 73 cents and $1.39 per share on an adjusted basis.
The cost on the two new reactors at Plant Vogtle is up to $27 billion, double the original estimates the company submitted when it sought approval from the Georgia Public Service Commission. The first of the two reactors is scheduled to be in service by 2021, five years behind schedule.
The company said it won't ask Georgia customers to pay for the cost overruns. Southern chief financial officer Andrew W. Evans said that the Vogtle overruns won't affect its 4 percent to 6 percent earnings per share guidance.
One of the problems facing Vogtle, as it did with Kemper, was a shortage of trained workers. Southern Company CEO Thomas Fanning said the Bechtel Company, which took over construction from bankrupt Westinghouse, is seeking electricians and pipe fitters from such diverse locales as Canada and Puerto Rico. The company plans to add 600 workers on site by November.
With Vogtle's continuing problems a drain on resources, it wouldn't be out of the question for cash-starved Southern to off-load some more assets, including Mississippi Power.
Southern's Magnolia State subsidiary serves the smallest customer base in the remaining Southern geographical footprint, but has the smallest amount of long-term debt — $600 million — of its three remaining electricity generation companies.
Fanning said the company will continue its "disciplined approach" to acquisitions and divestitures.
"Southern Company has demonstrated tremendous discipline as both a buyer and seller of assets. The AGL Resources and Southern Natural Gas transactions, for example, have proved to be terrific complements to our portfolio of companies, further strengthening our expected long-term growth profile," Fanning said on an earnings call. "Likewise, our recent divestitures have proven to be an effective source of equity with a significantly lower cost of capital than new common shares.
"Southern will continue this disciplined approach as we seek to further improve upon our state-regulated utility-centric growth profile."
Southern Company has been in a sale mode since its 2015 acquisition of natural gas company AGL Resources. The company announced in May that it'd sell Gulf Power, Florida City Gas and its share of two Florida generating plants to Florida-based NextEra Energy for $6.475 billion. The sale price includes $1.4 billion in debt for Gulf Power, which serves 450,000 customers in all or parts of eight Florida counties. These customers represented less than 5 percent of the company's total rate base.
The Southern Company also announced that same month that it will sell a 33 percent stake in its solar portfolio — which amounts to $1.175 billion — to Global Atlantic Financial Group Limited. In October, the company sold two components of its 2015 AGL purchase — Elizabethtown Gas and Elkton Gas — to South Jersey Industries for $1.7 billion.
After the finalization of its Florida transaction, Southern will retain only four of the seven gas distribution companies it acquired in the $12 billion AGL purchase