(EDGAR Online via COMTEX) -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER 2019 vs. THIRD QUARTER 2018 AND YEAR-TO-DATE 2019 vs. YEAR-TO-DATE 2018
OVERVIEW
Table of Contents SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the second quarter 2018, Georgia Power revised its total project capital cost forecast to complete construction and start-up of Plant Vogtle Units 3 and 4 to $8.4 billion (net of $1.7 billion received under the Guarantee Settlement Agreement and approximately $188 million in related Customer Refunds), with respect to Georgia Power's ownership interest.
Consolidated net income attributable to Southern Company was $1.3 billion ($1.26 per share) for the third quarter 2019 compared to $1.2 billion ($1.14 per share) for the corresponding period in 2018. The increase was primarily due to increased retail revenues at Alabama Power primarily due to the impact of customer bill credits issued in 2018 related to the Tax Reform Legislation and at Georgia Power primarily due to higher contributions from commercial and industrial customers with variable demand-driven pricing as well as warmer weather in the third quarter 2019 when compared to the corresponding period in 2018, partially offset by a reduction in customer usage at Alabama Power and Georgia Power. The increase in net income was also partially offset by increased impairment charges primarily related to a third quarter 2019 charge recorded at Southern Company Gas related to a natural gas storage facility.
Table of Contents SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated net income attributable to Southern Company was $4.3 billion ($4.12 per share) for year-to-date 2019 compared to $1.9 billion ($1.92 per share) for the corresponding period in 2018. The increase was primarily due to the $2.5 billion ($1.3 billion after tax) gain on the sale of Gulf Power in 2019 and a $1.1 billion ($0.8 billion after tax) charge in the second quarter 2018 for an estimated probable loss related to Georgia Power's construction of Plant Vogtle Units 3 and 4. See Note (K) to the Condensed Financial Statements under "Southern Company" herein and Note 2 to the financial statements under "Georgia Power - Nuclear Construction" in Item 8 of the Form 10-K for additional information.
In the third quarter 2019, retail electric revenues were $4.5 billion compared to $4.6 billion for the corresponding period in 2018. For year-to-date 2019, retail electric revenues were $11.1 billion compared to $11.9 billion for the corresponding period in 2018.
Third Quarter 2019 Year-to-Date 2019
(in millions) (% change) (in millions) (% change)
Retail electric - prior
year $ 4,605 $ 11,913
Estimated change
resulting from -
Rates and pricing 242 5.3 % 425 3.6 %
Sales decline (71 ) (1.6 ) (111 ) (0.9 )
Weather 125 2.7 68 0.5
Fuel and other cost
recovery (48 ) (1.0 ) (227 ) (1.9 )
Gulf Power disposition (341 ) (7.4 ) (932 ) (7.8 )
Retail electric - current
Revenues associated with changes in rates and pricing increased in the third quarter and year-to-date 2019 when compared to the corresponding periods in 2018 primarily due to the impacts of Alabama Power's customer bill credits issued in 2018 related to the Tax Reform Legislation, additional capital investments recovered through Alabama Power's Rate CNP Compliance, higher contributions from Georgia Power's commercial and industrial customers with variable demand-driven pricing, an increase in Georgia Power's NCCR tariff effective January 1, 2019, and increases in Mississippi Power's PEP and ECO Plan rates that became effective for the first billing cycle of September 2018.
Table of Contents SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
resulting from changes in production levels primarily in the primary metals, textile, stone, clay, and glass, paper, and chemicals sectors.
Wholesale electric revenues consist of PPAs and short-term opportunity sales. Wholesale electric revenues from PPAs (other than solar and wind PPAs) have both capacity and energy components. Capacity revenues generally represent the greatest contribution to net income and are designed to provide recovery of fixed costs plus 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 electric 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. Energy sales from solar and wind PPAs do not have a capacity charge and customers either purchase the energy output of a dedicated renewable facility through an energy charge or through a fixed price related to the energy. As a result, the ability to recover fixed and variable operations and maintenance expenses is dependent upon the level of energy generated from these facilities, which can be impacted by weather conditions, equipment performance, transmission constraints, and other factors. Wholesale electric revenues at Mississippi Power include FERC-regulated municipal and rural association sales under cost-based tariffs 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.
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SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Natural Gas Revenues
Third Quarter 2019 vs. Third Quarter 2018 Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions) (% change) (change in millions) (% change)
$6 1.2 $(145) (5.2)
In the third quarter 2019, natural gas revenues were $498 million compared to
$492 million for the corresponding period in 2018. For year-to-date 2019,
natural gas revenues were $2.7 billion compared to $2.8 billion for the
corresponding period in 2018.
Details of the changes in natural gas revenues were as follows:
Third Quarter 2019 Year-to-Date 2019
(in millions) (% change) (in millions) (% change)
Natural gas revenues - prior
year $ 492 $ 2,806
Estimated change resulting from
-
Infrastructure replacement
programs and base rate changes 15 3.0 % 57 2.0 %
Gas costs and other cost
recovery (14 ) (2.8 ) 35 1.2
Weather (1 ) (0.2 ) (1 ) -
Wholesale gas services 6 1.2 (10 ) (0.4 )
Southern Company Gas
Dispositions (8 ) (1.6 ) (245 ) (8.7 )
Other 8 1.6 19 0.7
Natural gas revenues - current
Revenues attributable to infrastructure replacement programs and base rate changes at the natural gas distribution utilities increased in the third quarter and year-to-date 2019 compared to the corresponding periods in 2018 primarily due to increases of $11 million and $36 million, respectively, at Nicor Gas and $2 million and $16 million, respectively, at Atlanta Gas Light. These amounts include the natural gas distribution utilities' continued investments recovered through infrastructure replacement programs and base rate increases as well as increases due to the impacts of the Tax Reform Legislation.
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SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Revenues
Third Quarter 2019 vs. Third Quarter 2018 Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions) (% change) (change in millions) (% change)
$(2) (1.0) $(458) (45.5)
For year-to-date 2019, other revenues were $549 million compared to $1.0 billion
for the corresponding period in 2018. This decrease was primarily related to
PowerSecure's 2018 storm restoration services in Puerto Rico.
Fuel and Purchased Power Expenses
Third Quarter 2019 Year-to-Date 2019
vs. vs.
Third Quarter 2018 Year-to-Date 2018
(change in millions) (% change) (change in millions) (% change)
Fuel $ (238 ) (18.2) $ (678 ) (19.3)
Purchased power (3 ) (1.2) (135 ) (17.8)
Total fuel and purchased power
expenses $ (241 ) $ (813 )
In the third quarter 2019, total fuel and purchased power expenses were $1.33 billion compared to $1.57 billion for the corresponding period in 2018. Excluding approximately $148 million associated with the sale of Gulf Power, the decrease was primarily the result of a $158 million decrease in the average cost of fuel and purchased power, partially offset by a $65 million net increase in the aggregate volume of KWHs generated and purchased.
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SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details of the Southern Company system's generation and purchased power were as
follows:
Third Third
Quarter Quarter Year-to-Date
2019 2018(a) Year-to-Date 2019 2018(a)
Total generation (in billions of KWHs) 54 53 143 146
Total purchased power (in billions of
KWHs) 6 4 14 11
Sources of generation (percent) -
Gas 54 50 51 48
Coal 24 28 23 27
Nuclear 15 15 16 15
Hydro 1 2 4 3
Other 6 5 6 7
Cost of fuel, generated (in cents per
net KWH)-
Gas 2.25 2.62 2.39 2.65
Coal 2.85 2.92 2.93 2.96
Nuclear 0.79 0.81 0.79 0.80
Average cost of fuel, generated (in
cents per net KWH) 2.18 2.42 2.24 2.43
Average cost of purchased power (in
cents per net KWH)(b) 5.22 6.18 5.11 6.14
(a) Excludes Gulf Power, which was sold on January 1, 2019.
(b) Average cost of purchased power includes fuel purchased by the Southern Company system for tolling agreements where power is generated by the provider.
Fuel
Oct 30, 2019
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