Business Context and Reporting Period
This Form 8-K is a combined current report filed by The Southern Company and Alabama Power Company on August 21, 2013, regarding events occurring on August 13, 2013. The filing addresses regulatory decisions by the Alabama Public Service Commission (PSC) concerning Alabama Power's Rate Stabilization and Equalization Plan (Rate RSE), Rate Certificated New Plant Environmental (Rate CNP Environmental), and a proposed non-nuclear outage accounting order.
Key Financial Metrics
The filing does not provide specific revenue, profit, cash flow, or debt figures. It focuses on regulatory rate mechanisms and cost recovery provisions. Key financial parameters discussed include:
- Weighted Cost of Equity (WCE): The PSC recommended a new allowed WCE range of 5.75% to 6.21% (adjusting point 5.98%) to replace the previous return on common equity range of 13.0% to 14.5%.
- Capital Structure: The provision limiting Alabama Power's capital structure to a 45% equity ratio was eliminated.
- Performance Adder: A potential adder of 0.07% to the WCE adjusting point is available if Alabama Power maintains an "A" credit rating or ranks in the top one-third of a customer value benchmark survey.
Material Changes Versus Prior Period
The Alabama PSC voted to modify the Rate RSE mechanism effective for calendar year 2014. Material changes include:
- Elimination of the allowed return on common equity range and the 45% equity ratio cap.
- Implementation of a new WCE range (5.75% to 6.21%) replacing the previous calculation method which would have yielded a WCE range of 5.85% to 6.53%.
- Approval of revisions to Rate CNP Environmental to allow recovery of costs related to pre-2005 environmental assets currently recovered through Rate RSE.
- Authorization to defer operations and maintenance expenses for planned non-nuclear outages in 2014 to a regulatory asset account, with amortization over three years beginning in 2015.
Guidance, Outlook, and Management Commentary
Alabama Power filed its consent to the PSC's recommendations on August 21, 2013. As a result of these regulatory changes, Alabama Power does not currently expect any rate adjustment to be required under Rate RSE for 2014. The company is required to file its 2014 Rate RSE submission with the Alabama PSC by December 1, 2013. The filing references prior 10-K and 10-Q reports for detailed historical context on these regulatory matters.
Investor Verification Checklist
- Verify the impact of the new WCE range (5.75% to 6.21%) on future earnings potential compared to the previous return on equity structure.
- Confirm Alabama Power's credit rating status to determine eligibility for the 0.07% performance-based adder.
- Review the December 1, 2013, Rate RSE submission to ensure no rate adjustments are ultimately required for 2014.
- Monitor the deferral and amortization schedule for 2014 non-nuclear outage expenses to assess future regulatory asset impacts.