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Mizuho: Capital spending, PSC outcomes to slightly boost Southern's performance

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Mizuho: Capital spending, PSC outcomes to slightly boost Southern's performance

Alabama Power Co.'s proposed $1.1 billion increase in capital spending and the outcome of two Southern Co. subsidiaries' rate cases at Georgia's utility commission are expected to give Southern a small lift in its financial performance, according to Mizuho Securities USA LLC.

Mizuho adjusted its 2019-2021 earnings per shares estimates for Southern in an Oct. 7 note to $3.03, $3.18 and $3.31, respectively, from $3.02, $3.17 and $3.29. Alabama Power's capital spending plan to procure additional gas generation capacity is driving the increase in EPS, along with its recent $600 million issuance of senior notes, Mizuho analyst Paul Fremont wrote.

Alabama Power on Sept. 6 filed a request with the Alabama Public Service Commissions for approval of its plans to build an approximately 720-MW combined-cycle generation facility with Mitsubishi Hitachi Power Systems Americas Inc. and Black & Veatch Construction, Inc., and to acquire an 885-MW combined-cycle plant from Tenaska Alabama II Partners LP. The utility also intends to enter power purchase agreements for another approximately 640 MW of combined-cycle gas generation outside of its $1.1 billion in additional capital spending.

Southern units Atlanta Gas Light Co. and Georgia Power Co. both have rate cases with the Georgia Public Service Commission. The utility commission's staff has rebuffed Atlanta Gas Light's request for a 55% equity ratio and a 10.75% return on equity by recommending a 51% equity ratio and a 9% ROE. PSC staff also called for reducing the company's present revenues by $42 million, compared to Atlanta Gas Light's request to increase revenues by $92 million.

"We compiled data for past natural gas distribution rate cases in Georgia and we see an average reduction of 49 basis points in the authorized v. the requested ROE, as well as an average reduction of 88 basis points in the authorized vs requested equity ratio," Fremont said. That would roughly imply a 10.25% ROE and 54.0% equity ratio for Atlanta Gas Light in the current rate proceeding.

If the rate case's final decision includes the Georgia PSC staff's recommendation, Mizuho estimates it would ding Southern's earnings per share estimate for 2020-2021 by 3 cents to 4 cents. The commission is expected to announce a decision by Dec. 19.

Georgia Power executives testified before the PSC on during three days of hearings on its request to recover $937 million in additional revenues for the 2020-2022 period. The utility is proposing a 10.9% ROE and a 56% equity ratio. The PSC staff will file its testimony on Georgia Power's rate case on Oct. 17.

"Mizuho continues to believe that there is a high probability of settlement in the Georgia Power rate case and do not anticipate staff's testimony on [Atlanta Gas Light's] rate case to have any bearing on the electric case," Fremont said.