Business context and reporting period
Southern Company’s combined Form 10-K covers the fiscal year ended December 31, 2023, and was filed February 14, 2024. The company is a holding company with regulated electric utilities in Alabama, Georgia, and Mississippi; wholesale generation through Southern Power; and natural gas distribution and related businesses through Southern Company Gas. Unless noted, financial figures below are consolidated Southern Company amounts.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Operating revenues | $25.253 billion | $29.279 billion |
| Operating income | $5.826 billion | $5.370 billion |
| Net income attributable to Southern Company | $3.976 billion | $3.524 billion |
| Diluted EPS | $3.62 | $3.26 |
| Operating cash flow | $7.553 billion | $6.302 billion |
| Cash and cash equivalents at year-end | $748 million | $1.917 billion |
| Long-term debt, including current maturities | $59.686 billion | $54.941 billion |
| Total stockholders’ equity | $35.225 billion | $34.532 billion |
- Revenue fell 13.8%, principally as lower fuel and natural gas prices reduced fuel-cost recovery and wholesale energy revenue. Fuel and purchased-power expenses fell 37.7%; these costs are generally recovered through rates and their changes typically have limited effect on utility earnings.
- Operating income increased 8.5%; operating margin was approximately 23.1%, versus 18.3% in 2022. Attributable net income increased 12.8%; diluted EPS rose 11.0%.
- Operating cash flow improved by $1.251 billion, partly due to fuel-cost recovery and the timing of customer collections and vendor payments. Property additions were $9.095 billion; operating cash flow less property additions was negative $1.542 billion. Net cash used in investing was $9.668 billion.
- Cash, cash equivalents, and restricted cash totaled $921 million at year-end. Current liabilities exceeded current assets by $3.035 billion. Southern Company reported $7.566 billion of unused committed bank credit arrangements and said it expects to meet cash needs through operating cash flow and capital-market or bank financing.
- Debt increased; interest expense, net of amounts capitalized, was $2.446 billion, up from $2.022 billion. Management attributed the increase mainly to higher interest rates and average borrowings.
- Dividends paid were $2.78 per share, versus $2.70 in 2022. The 2023 payout ratio was 76%, compared with 82% in 2022; the board declared a 70-cent quarterly dividend in January 2024.
Material changes versus the prior year
- Plant Vogtle Unit 3 entered service July 31, 2023. Southern Company Gas earnings increased to $615 million from $572 million, including the absence of a $131 million pre-tax impairment charge recorded in 2022 for storage facilities being sold.
- Southern Power’s net income attributable to the company was $357 million, broadly unchanged from $354 million, despite a $1.180 billion reduction in revenue as wholesale energy prices declined.
- Retail electric sales declined 2.3% overall; weather-adjusted retail sales were down 0.4%. Natural gas distribution volumes also declined, while gas cost recovery revenues fell with lower commodity prices.
- Depreciation and amortization rose to $4.525 billion from $3.663 billion, including higher depreciation rates at Alabama Power and Georgia Power. The company’s year-end cash balance also declined while long-term debt increased.
Outlook, risks, contingencies, and unusual items
- Plant Vogtle Unit 4: Georgia Power projected commercial operation in the second quarter of 2024. Its share of the forecast project capital cost to complete Units 3 and 4 was approximately $10.8 billion, with only $36 million of construction contingency remaining at December 31, 2023. The Georgia PSC approved recovery of $7.562 billion of construction and capital costs under a prudency stipulation; further changes to the forecast are not recoverable through rates and must be charged to income. Delays beyond June 2024 could add up to $25 million per month to Georgia Power’s base capital costs, plus related costs. The filing also describes a potential earnings impact of approximately $30 million per month if Unit 4 had not achieved commercial operation by March 31, 2024.
- Georgia Power’s approved rate adjustment is expected to increase annual retail base revenues by approximately $729 million, with average base rates increasing about 5% after Unit 4 enters commercial operation; the NCCR tariff will then cease. Georgia Power’s under-recovered fuel balance was $1.9 billion at year-end, with recovery planned over time through customer rates.
- Nicor Gas recorded approximately $96 million of pre-tax charges related to regulatory disallowances of capital investments. It appealed the Illinois Commission’s rulings; additional disallowances in pending proceedings could be material.
- Southern Company and Mississippi Power face a False Claims Act suit concerning DOE grants for the abandoned Kemper project. The company says the outcome cannot be determined; an adverse outcome could materially affect their financial statements. Other disclosed matters include Plant Scherer litigation and CCR-related disputes and closure obligations.
- Environmental rules remain uncertain. Proposed federal requirements for greenhouse-gas emissions and wastewater discharges, evolving coal-ash requirements, and rate-recovery outcomes may lead to substantial compliance costs. The company’s preliminary 2023 emissions indicate a 49% reduction from 2007; management targets a 50% reduction by 2030 and net-zero emissions by 2050, and expects to exceed the interim reduction target as early as 2025.
- Estimated 2024 capital expenditures for the Southern Company system are $10.0 billion; projected annual expenditures for 2025–2028 range from $8.5 billion to $9.4 billion. These are estimates, not earnings guidance. Management did not provide a consolidated EPS forecast in the supplied filing text.
- Southern Company reported no material cybersecurity incidents through the filing date. Deloitte issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management also concluded internal controls were effective.
Most important facts for investors to verify
- Unit 4’s actual commercial-operation date, remaining completion costs, and whether costs exceed the forecast or contingency.
- Georgia Power’s implementation of the approved Vogtle rate recovery and the timing and cash-flow effects of recovering the $1.9 billion fuel balance.
- Southern Company’s ability to fund substantial capital spending, debt maturities, and dividends while cash declined and borrowings increased.
- Developments in Nicor Gas’s appeals, the Kemper False Claims Act case, and CCR or other environmental proceedings, including potential costs and regulatory recovery.
- Whether forecast capital spending, interest costs, and regulatory rate actions change materially from the estimates and assumptions disclosed in the filing.