Southern Company (NYSE: SO) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also covers Alabama Power, Georgia Power, Mississippi Power, Southern Power, and Southern Company Gas. Southern Company is a regulated electric and natural-gas utility holding company; this is an annual report, not a quarterly filing.
Business context and financial performance
Southern Company’s principal businesses are regulated electricity sales, wholesale power generation, and natural-gas distribution and related services. The 2020 results reflect pandemic-related demand changes, asset sales and acquisitions, and further costs and uncertainty at Plant Vogtle Units 3 and 4.
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $20.375 billion | $21.419 billion |
| Operating income | $4.885 billion | $7.736 billion |
| Net income attributable to Southern Company | $3.119 billion | $4.739 billion |
| Basic / diluted EPS | $2.95 / $2.93 | $4.53 / $4.50 |
| Cash from operating activities | $6.696 billion | $5.781 billion |
| Cash used for investing activities | $7.030 billion | $3.392 billion |
| Cash used for financing activities | $576 million | $1.930 billion |
Revenue fell 4.9%; net income attributable to Southern Company declined 34.2%. The 2020 operating margin was approximately 24.0% of revenue, versus 36.1% in 2019; the prior year included a major gain on the Gulf Power sale, making that comparison unusually favorable. Operating cash flow exceeded 2020 property additions of $7.441 billion by about $745 million, before other investing items and financing needs.
At year-end, cash and cash equivalents were $1.065 billion, total assets were $122.935 billion, and common stockholders’ equity was $27.972 billion. Long-term debt, including amounts due within one year, was $48.580 billion; notes payable added $609 million of short-term borrowing. Unused committed bank credit was $7.671 billion. Management described financial condition as stable and access to capital as adequate, while noting that projected dividends, capital expenditures, and debt maturities are expected to exceed operating cash flows for each Registrant over 2021–2023.
Common dividends paid were $2.54 per share in 2020, up from $2.46 in 2019; the 2020 payout ratio was 86%. In January 2021, the company declared a quarterly dividend of $0.64 per share.
Material changes versus 2019
- 2019 included a $2.6 billion pre-tax gain on the Gulf Power sale ($1.4 billion after tax). Its absence was the primary reason for the lower 2020 consolidated earnings.
- Georgia Power recorded $325 million of pre-tax Vogtle construction charges in 2020, compared with none in 2019. Southern Company also recorded $206 million of leveraged-lease impairment charges.
- Electric operating revenue declined $598 million. Retail electric revenue fell $441 million; weather-adjusted retail electricity sales fell 3.0%, with commercial and industrial demand particularly affected by COVID-19.
- Southern Company Gas net income was $590 million, up $5 million. Lower wholesale gas-services earnings were largely offset by improved gas-distribution results and asset-sale impacts.
- Southern Power net income attributable to the segment was $238 million, down $101 million, primarily reflecting the prior-year Plant Nacogdoches gain and the effects of asset dispositions.
- Cash from operations increased $915 million, partly because Southern Company made a $1.1 billion voluntary pension contribution in 2019. Capital spending remained substantial.
Outlook, risks, contingencies, and unusual items
- Vogtle: Georgia Power’s forecast share of total project capital cost was $8.7 billion, net of $1.7 billion in Toshiba payments and approximately $188 million in customer refunds. The remaining estimate to complete was $1.5 billion, excluding certain financing costs. Regulatory-approved in-service dates were November 2021 for Unit 3 and November 2022 for Unit 4. Management said Unit 3’s schedule was challenged, with minimal schedule margin; further delays or cost increases could lead to additional charges. Georgia Power estimated its share of COVID-related incremental costs at $150–$190 million. Cost recovery remains subject to future regulatory decisions.
- Construction and investment: The system estimated 2021 construction spending of $8.2 billion, including approximately $1.3 billion for Vogtle. Estimated cash requirements and project costs may change; full cost recovery is not assured.
- COVID-19 and demand: Pandemic effects reduced commercial and industrial electricity demand, interrupted customer payments and affected construction productivity. The pace and extent of demand recovery were uncertain.
- Environmental obligations: Coal-ash closure and monitoring costs drove significant revisions to asset-retirement estimates. The company reported $10.684 billion in consolidated asset-retirement obligations at year-end; estimates and recovery depend on closure plans, regulatory requirements, and rate treatment. Southern Company’s emissions goals are a 50% reduction from 2007 levels by 2030 and net-zero emissions by 2050; achievement depends on technology, fuel prices, and regulatory and market developments.
- Other notable matters: Mississippi Power was directed to include a plan for early or anticipated retirement of 950 MW of fossil-steam generation by year-end 2027 in its 2021 resource plan. The Department of Justice investigation concerning DOE grants for the abandoned Kemper project remained unresolved. The PennEast Pipeline faced permitting and legal uncertainty; Southern Company Gas reported no impairment of its $91 million investment at year-end.
- Financing and regulatory exposure: The parent reported $3.462 billion by which current liabilities exceeded current assets. Management expects to meet working-capital needs through operating cash flow, commercial paper, credit lines, and other financing, but capital-market access, credit ratings, interest rates, and regulatory cost recovery remain risks.
Management provided no single consolidated earnings forecast. The filing discusses planned investment, rate proceedings, and project schedules, all subject to regulatory approvals and uncertainty. The independent auditor issued an unqualified opinion on the consolidated financial statements and concluded that Southern Company’s internal control over financial reporting was effective.
Important facts for investors to verify
- Vogtle’s current cost-to-complete estimate, schedule milestones, contingency, and Georgia PSC treatment of costs not yet approved for recovery.
- Whether 2020 earnings comparisons are adjusted for the 2019 Gulf Power gain, 2020 Vogtle charges, and leveraged-lease impairments.
- The timing, amount, and recovery of coal-ash closure obligations and other asset-retirement costs.
- Cash flow available after construction spending, dividends, debt maturities, and other commitments, including the company’s refinancing assumptions.
- Updates on COVID-19 demand and construction effects, Mississippi generation-retirement planning, the Kemper investigation, and PennEast litigation and permits.