Southern Company 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Southern Company is a regulated utility holding company with electric, wholesale power, and natural gas businesses. The combined filing also covers Alabama Power, Georgia Power, Mississippi Power, Southern Power, and Southern Company Gas.
Financial performance and position
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Operating revenue | $29.279 billion | $23.113 billion |
| Operating income | $5.370 billion | $3.698 billion |
| Net income attributable to Southern Company | $3.524 billion | $2.393 billion |
| Diluted earnings per share | $3.26 | $2.24 |
| Operating cash flow | $6.302 billion | $6.169 billion |
| Investing cash flow | $(8.430) billion | $(7.353) billion |
| Cash, cash equivalents, and restricted cash at year-end | $2.037 billion | $1.829 billion |
Revenue increased 26.7% and net income attributable to Southern Company increased 47.3%. The increase in earnings primarily reflected substantially lower after-tax charges for Vogtle Units 3 and 4 construction, higher retail electric revenues, warmer weather, sales growth, and natural gas rate and infrastructure-related revenue growth. Higher operating costs and interest expense partly offset these factors. Approximate 2022 operating and net margins were 18.3% and 12.0%, respectively, calculated from reported consolidated revenue.
At December 31, 2022, total assets were $134.891 billion, total liabilities $100.359 billion, and stockholders’ equity $34.532 billion. Long-term debt was $50.656 billion and securities due within one year were $4.285 billion; short-term notes payable were another $2.609 billion. Cash was $1.917 billion. Current liabilities exceeded current assets by $5.308 billion; management cited commercial paper, committed bank lines, operating cash flows, and other financing as liquidity sources. Unused committed bank credit arrangements totaled $7.596 billion.
Southern Company paid $2.70 per common share in dividends in 2022, versus $2.62 in 2021; the reported 2022 dividend payout ratio was 82%, versus 116% in 2021. The filing reports net cash flow from operations, investing, and financing, but does not present free cash flow as a defined performance measure.
Business results and changes versus the prior year
- Electric business: 2022 revenue was $22.873 billion, up $4.573 billion. Retail revenue rose with rates and pricing, sales growth, weather, and fuel and other cost recovery. Retail electricity sales rose 3.2%; weather-adjusted retail sales rose 1.2%. Higher fuel and purchased-power costs were generally recovered through regulatory mechanisms, but affected cash flow and under-recovered balances.
- Natural gas business: Southern Company Gas revenue was $5.962 billion, up $1.582 billion, while net income increased to $572 million from $539 million. Higher gas costs and volumes raised revenue and expense; regulated gas cost recovery generally offsets the impact on net income. Results also reflected rate and infrastructure growth, the 2021 sale of Sequent, and 2022 storage-facility impairment charges.
- Southern Power: Revenue increased to $3.369 billion from $2.216 billion and net income attributable to Southern Power rose to $354 million from $266 million, chiefly reflecting higher energy prices and natural gas PPA activity. Its generation fleet had 12,501 MW of nameplate capacity in commercial operation and an average investment coverage ratio of 96% through 2027.
- Unusual items: Georgia Power recorded $183 million of 2022 pre-tax charges for the estimated probable loss related to Vogtle construction. Southern Company Gas recorded $131 million of pre-tax impairment charges ($99 million after tax) related to two storage facilities being sold. Southern Company recorded a $119 million goodwill impairment at PowerSecure.
Outlook, risks, and contingencies
- Vogtle: Georgia Power’s share of the forecast total project capital cost was $10.593 billion, net of specified Toshiba payments and customer refunds, with an estimated $1.072 billion remaining to complete at year-end. The then-current forecast placed Unit 3 in service in May or June 2023 and Unit 4 in late fourth-quarter 2023 or first-quarter 2024. Further delays could add up to $15 million per month for Unit 3 and $35 million per month for Unit 4, plus related financing and other costs. The filing warns that unrecoverable increases could require further charges. OPC and Dalton litigation over project cost-sharing and tender provisions remained unresolved; Georgia Power disclosed potential further pre-tax charges of up to approximately $345 million based on the then-current forecast.
- Regulatory rates: Georgia Power’s approved 2022 Alternate Rate Plan provides estimated net rate increases of $216 million in 2023, $377 million in 2024, and $403 million in 2025. Alabama Power’s approved 2023 rate changes include increases, with customer bill credits of up to approximately $318 million related to excess deferred taxes. These are forecast or approved rate changes, not guarantees of earnings growth.
- Capital spending and environmental obligations: The system estimated 2023 construction expenditures of $9.1 billion. Estimated ash-pond and landfill closure and monitoring expenditures were $672 million in 2023, with further substantial spending projected through 2027. Environmental compliance costs and recovery through rates remain uncertain.
- Fuel, inflation, and financing: Henry Hub natural gas averaged $6.38 per mmBtu in 2022; management cited a 2023 forecast of approximately $3.30, while noting continuing volatility risk. Inflation, supply-chain and labor constraints, interest rates, recession risk, and access to capital could affect costs, project delivery, and financing.
- Climate goals: Management’s goals are a 50% reduction in greenhouse-gas emissions from 2007 levels by 2030 and net-zero emissions by 2050. Preliminary 2022 emissions indicated an estimated 46% reduction since 2007; achieving the goals depends on technology, fuel prices, investment, and regulatory developments.
- Other material exposures: The filing identifies risks related to utility regulation and cost recovery, nuclear operations, CCR requirements, storms and other severe weather, cyber and physical security, natural-gas infrastructure, and counterparties. Mississippi Power’s MRA wholesale customers represented 12.4% of its 2022 revenue, and a related rate proceeding was subject to refund and further review.
- Audit and controls: Deloitte issued unqualified opinions on Southern Company’s financial statements and internal control over financial reporting. The auditors identified rate regulation and Vogtle construction cost-recovery uncertainty as critical audit matters.
Most important facts for investors to verify
- Vogtle Unit 3 and Unit 4 actual in-service dates, final project costs, remaining completion spending, and subsequent Georgia PSC cost-recovery decisions.
- Developments in OPC and Dalton litigation and any resulting changes to Georgia Power’s ownership share, payment obligations, or charges.
- Georgia Power’s fuel-cost under-recovery balance, reported at $2.1 billion at year-end 2022, and the timing and regulatory treatment of recovery.
- Whether planned rate increases and customer refunds occur as expected, and whether regulators permit recovery of construction, environmental, and storm-related costs.
- Actual cash generation relative to capital spending, debt maturities, dividends, and short-term borrowing needs; assess liquidity alongside the $5.308 billion current-liability excess and committed credit availability.
- Updates to CCR closure estimates and liabilities, the pending California storage-facility sale, and other regulatory or legal proceedings that could affect earnings or cash flow.