Southern Company — 2021 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2021; this is an annual report, not a stand-alone fourth-quarter filing. Southern Company is a regulated utility holding company whose businesses include electric utilities in Alabama, Georgia, and Mississippi; wholesale generation through Southern Power; and natural-gas distribution and related activities through Southern Company Gas. The combined filing also includes separate financial statements for major subsidiaries.
Key financial results and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Operating revenues | $23.113 billion | $20.375 billion |
| Operating income | $3.698 billion | $4.885 billion |
| Net income attributable to Southern Company | $2.393 billion | $3.119 billion |
| Diluted EPS | $2.24 | $2.93 |
| Cash provided by operating activities | $6.169 billion | $6.696 billion |
| Cash used for investing activities | $7.353 billion | $7.030 billion |
| Cash and cash equivalents at year-end | $1.798 billion | $1.065 billion |
Revenue rose 13.4%, but attributable net income declined 23.3%. The increase in revenue largely reflected higher fuel and natural-gas cost recovery, which generally does not increase regulated utility earnings. Operating income fell in large part because of higher Plant Vogtle construction charges and operating costs. No consolidated gross-margin figure is stated in the filing; the reported operating margin was approximately 16.0%, compared with 24.0% in 2020.
- Long-term debt, including amounts due within one year: $52.277 billion at year-end; notes payable: $1.440 billion. Total liabilities were $94.967 billion.
- Current liabilities exceeded current assets by $1.956 billion. The company cites seasonal cash needs, short-term borrowing, and debt maturities as factors, and reported $7.594 billion of unused committed bank credit arrangements.
- Common dividends were $2.62 per share in 2021 versus $2.54 in 2020. The 2021 dividend payout ratio was 116%. In January 2022, the board declared a quarterly dividend of $0.66 per share.
- Southern Company’s 2022 construction program was estimated at $8.7 billion. Capital expenditure forecasts were $8.6 billion for 2023, $7.5 billion for 2024, $7.2 billion for 2025, and $7.1 billion for 2026.
Material changes versus 2020
- Electric-business net income attributable to Southern Company declined to $2.247 billion from $3.115 billion. Gas-business net income fell to $539 million from $590 million; other business activities remained loss-making, at $393 million versus $586 million.
- Plant Vogtle Units 3 and 4 estimated-loss charges were $1.692 billion pre-tax in 2021, up from $325 million in 2020. Georgia Power’s 2021 net income fell to $584 million from $1.575 billion, primarily due to these charges.
- Electric operating revenues increased to $18.3 billion from $16.5 billion. Retail electric sales rose 2.0% and wholesale sales 9.5%; higher fuel and purchased-power prices also lifted reported costs and revenues.
- Southern Company Gas revenue rose to $4.380 billion from $3.434 billion, while net income declined to $539 million from $590 million. The sale of Sequent on July 1 generated a $121 million pre-tax gain, but related state tax effects and other items affected earnings. PennEast’s cancellation resulted in $84 million of pre-tax impairment charges.
- Operating cash flow fell by $527 million, to $6.169 billion. The filing attributes the decline chiefly to lower electric fuel-cost recovery and under-recovered natural-gas costs, including costs associated with Winter Storm Uri.
- S&P downgraded Southern Company’s issuer credit rating to BBB+ from A- in October 2021; the filing reports corresponding subsidiary rating changes. Management said there were no credit arrangements at year-end requiring material payment-schedule changes or termination solely because of a downgrade.
Outlook, commentary, risks and unusual items
- Vogtle: Georgia Power’s share of the forecast project capital cost was $10.4 billion, net of the Toshiba settlement and related customer refunds, with a $150 million construction contingency and an estimated $1.959 billion remaining to complete. Unit 3’s site plan targeted fuel load in Q2 2022, but management projected an in-service date in Q4 2022 or Q1 2023; Unit 4 was projected for Q3 or Q4 2023. Further delays could add up to $60 million per month for Unit 3 and $40 million per month for Unit 4, plus related costs. Up to approximately $460 million of further charges associated with co-owner cost-sharing and tender provisions could be required; those incremental costs are not recoverable from retail customers.
- Management cited construction productivity, remediation, system turnovers, documentation and NRC inspections, labor availability, testing, and pandemic impacts as schedule and cost risks. A vote by owners holding at least 90% of project interests to continue construction was triggered; Georgia Power voted to continue. Failure to obtain the required vote could permit the DOE to require repayment of outstanding FFB borrowings over five years.
- Regulatory outcomes matter to recovery of utility investment and costs. Georgia Power’s 2022 rate case was due by July 1, 2022. Its approved Unit 3/common-facilities rate adjustment was expected to raise annual base rates by about $302 million once Unit 3 entered service, partly offset by a $78 million reduction in the NCCR tariff effective January 2022.
- Georgia Power’s January 2022 integrated resource plan requested retirement of several coal units and approval of additional renewables, storage, and related investment; a decision was expected in July 2022. Alabama Power’s proposed acquisition of a 743-MW generating station remained subject to approvals, with a decision expected by Q3 2022.
- Environmental compliance and coal-ash closure costs may be substantial and estimates can change. The system also faces evolving GHG regulation, extreme weather, fuel-price volatility, cyber and physical security threats, and risks to construction, supply chains, labor, and capital-market access. Southern Company’s stated climate goals are a 50% GHG-emissions reduction from 2007 levels by 2030 and net zero by 2050; preliminary 2021 emissions indicated a 47% reduction since 2007.
- Other notable items included a $93 million pre-tax gain on termination of two leveraged-lease projects, and $49 million of Mississippi Power storm costs reclassified to a regulatory asset for future recovery. The filing provides no formal consolidated EPS guidance.
Most important facts for investors to verify
- Updated Vogtle schedule, cost-to-complete, contingency, owner tender/cost-sharing outcome, and the amount ultimately recoverable from customers.
- Whether expected rate increases and fuel-cost recovery keep pace with operating, financing, and construction costs—and how much recovery is delayed or disallowed.
- Cash flow available after capital spending, debt maturities, dividends, and required environmental and asset-retirement spending; also monitor leverage and credit ratings.
- Sequent-sale tax consequences, PennEast impairment and cancellation effects, and whether other asset-sale gains or unusual items affect comparisons with recurring earnings.
- Environmental and coal-ash closure estimates, regulatory decisions, and any material updates to litigation or contingencies. The filing identifies rate regulation and Vogtle cost-recovery uncertainty as critical audit matters; the auditor issued an unqualified opinion, and management reported effective internal control over financial reporting.