Southern Company 2022 Second-Quarter Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The combined filing covers Southern Company and five subsidiaries; financial statements are unaudited. Unless noted, amounts are in U.S. dollars.
Business context and results
Southern Company is a regulated electric and natural gas utility holding company, with wholesale power generation and related businesses. Results reflect the three traditional electric utilities, Southern Power, and Southern Company Gas. Comparisons are affected by higher fuel and gas prices, which largely flow through customer cost-recovery mechanisms, and by the prior-year sale of Sequent.
| Consolidated metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $7.206bn | $5.198bn | $13.854bn | $11.108bn |
| Operating income | $1.655bn | $708m | $3.039bn | $2.306bn |
| Net income attributable to Southern Company | $1.107bn | $372m | $2.139bn | $1.508bn |
| Basic / diluted EPS | $1.04 / $1.03 | $0.35 / $0.35 | $2.01 / $2.00 | $1.42 / $1.41 |
Operating margin was approximately 23.0% in Q2 2022 versus 13.6% in Q2 2021, and 21.9% for the first half versus 20.8%. Higher earnings primarily reflected lower Vogtle construction charges, increased retail electric revenues from rates, weather and cost recovery, and the absence of the prior-year PennEast impairment and Sequent loss. Higher non-fuel operating costs and interest expense partly offset these benefits.
Cash flow, debt and liquidity
- First-half operating cash flow was $3.579bn, versus $2.904bn; investing cash outflow was $3.460bn, versus $4.026bn; financing cash outflow was $213m, compared with $1.671bn of inflow in 2021. Property additions were $3.213bn.
- Cash and cash equivalents were $1.724bn at June 30, compared with $1.798bn at year-end 2021. Current liabilities exceeded current assets by $1.706bn. Management said working-capital needs can be met through operating cash flow, commercial paper, credit lines and short-term borrowing.
- Long-term debt was $51.204bn and notes payable were $2.510bn at June 30; securities due within one year were $1.052bn. Unused committed bank credit was $7.595bn. The registrants reported compliance with debt covenants.
- Southern Company paid a $0.68-per-share Q2 dividend. It expected to issue about 25.2m shares on August 1, 2022, to settle purchase contracts related to its equity units.
Material changes, outlook and risks
- Vogtle Units 3 and 4: Georgia Power’s forecast share of project capital costs, including contingency and net of specified Toshiba payments and customer refunds, was about $10.453bn; estimated remaining capital costs were $1.487bn. Unit 3 fuel load was projected for Q4 2022 and commercial service for Q1 2023; Unit 4 service was projected for Q4 2023. The forecast excludes certain financing costs. Management cautioned that further delay could raise costs; estimated additional base costs under current cost-sharing arrangements were up to $35m per month for Unit 3 and $45m per month for Unit 4.
- Georgia Power recorded $52m of Vogtle estimated losses in first-half 2022, compared with $508m in first-half 2021. Separate Q2 charges included $36m to replenish construction contingency and $16m related to disputed owner cost-sharing and tender provisions. Georgia Power said further charges of up to approximately $480m could be required. OPC and Dalton purported to exercise tender options; OPC and MEAG Power sued over interpretation of the cost-sharing provisions. Outcomes remain uncertain.
- Georgia Power’s pending three-year base-rate filing requested increases of $852m effective in 2023, $107m in 2024 and $45m in 2025. A decision was expected December 20, 2022. The Georgia PSC also approved a resource plan that includes specified coal-unit retirements, environmental work, renewable procurements and storage development.
- After quarter-end, Alabama’s PSC approved an increase in Alabama Power’s fuel-recovery rate expected to add about $310m annually to revenue, with no significant net-income effect. Mississippi Power received approval for an approximately $18m annual retail revenue increase effective in April.
- Management cited inflation, higher interest rates, supply-chain constraints, fuel-price volatility, weather, regulatory and environmental requirements, and construction execution as risks. A Mississippi Power customer-refund lawsuit was remanded for further proceedings; an adverse outcome could materially affect that company. The filing reported no material changes to previously disclosed risk factors and no material changes in market-risk disclosures.
Key facts for investors to verify
- Vogtle schedule, remaining cost forecast, recoverability through rates, and the owner tender/cost-sharing dispute.
- Georgia Power’s base-rate case outcome and the timing and recovery of fuel and environmental costs.
- Whether operating cash flow, committed credit and refinancing remain sufficient for construction spending, dividends and debt maturities.
- How much of reported revenue growth came from pass-through fuel and gas costs rather than earnings-producing activity.
- Developments in Mississippi Power litigation and the effects of inflation, interest rates and supply constraints.