\r\n\r\n \r\nSouthern Power, a leading U.S. wholesale energy provider and\r\nsubsidiary of Southern Company, today announced that it has entered\r\nan agreement to sell the Mankato Energy Center to Xcel Energy for\r\n$650 million.\r\n<\/p>\r\n \r\nMankato, a natural gas combined-cycle generation facility, will have\r\na maximum capacity of approximately 760 megawatts upon completion of\r\nan ongoing expansion project. The completion of the sale, subject to\r\nregulatory approval and other closing conditions, is expected to be\r\nmid-2019.\r\n<\/p>\r\n \r\n“The Mankato Energy Center is a valuable part of the local community\r\nand the regional energy infrastructure,” said Southern Power\r\nPresident and CEO Mark Lantrip. “This transaction is a great\r\nopportunity to deliver value for the benefit of Southern Company\r\nshareholders.”\r\n<\/p>\r\n \r\nProceeds from this transaction will be used to strengthen the\r\nbalance sheet of Southern Company and position Southern Power to\r\ncontinue providing clean, safe, reliable and affordable wholesale\r\nenergy to its customers across the U.S, including the expansion of\r\none of the nation’s largest carbon-free renewable energy portfolios.\r\n<\/p>\r\n<\/blockquote>\r\n \r\nWhat does “strengthen the balance sheet” mean?\r\n\r\n\r\nThe simplest version might be to have more assets than liabilities.\r\nWhich would mean that Mankato gas plant was a liability.\r\n \r\nSouthern Company CEO Tom Fanning, curiously not quoted in a press release\r\nby his own company, was quoted in an earnings call transcript of the same day.\r\n \r\nMotley Fool transcribers, 7 November 2018,\r\n\r\nSouthern Co (SO) Q3 2018 Earnings Conference Call Transcript:\r\nSO earnings call for the period ending September 30, 2018,<\/a>\r\n \r\nNext, as an update to our ongoing initiatives to optimize sources of\r\ncommon equity, we have reached a definitive agreement to sell\r\nSouthern Power’s Mankato Energy Center to Northern States Power.\r\nRecall that the Mankato facility consists of an existing one on one\r\nnatural gas combined cycle with an expansion project that is\r\ncurrently in the late stages of construction and is expected to be\r\nin service by mid 2019. We expanded two-on-one facility will have a\r\ntotal capacity of approximately 760 megawatts. Subject to customary\r\nclosing conditions, we expect this transaction to close in mid 2019,\r\nbe earnings accretive and offset approximately $400 million of\r\nequity needs for Southern Company. The total transaction value is\r\n$650 million.\r\n<\/p>\r\n<\/blockquote>\r\n \r\nAh, another euphemism: “to optimize sources of common equity”.\r\nI’m guessing the “common” refers to common stock as in shareholders such as myself.\r\nSo stockholders equity would be assets minus liabilities, with the assets mostly being\r\n\r\ncapital and retained earnings<\/a>.\r\nSome capital can be\r\n\r\nin the form of debt<\/a>.\r\nOther capital can be from sale of assets,\r\nsuch as just happened with this Mankato plant.\r\nSo if the point is “to optimize sources of common equity”\r\nby selling off an asset, does that mean debt equity was too high?\r\n \r\nBut I am for sure not a financial expert.\r\nLet’s see what an actual financial expert said:\r\n Andrew Evans<\/strong> — Chief Financial Officer, Executive Vice President<\/em><\/p>\r\n \r\nThanks, Tom, and good morning, everyone. The Mankato transaction Tom\r\nmentioned is another great example of our ability to efficiently\r\nsource capital to mitigate our broader equity needs.\r\n<\/p>\r\n<\/blockquote>\r\n \r\nOK, Southern Company sold the Mankato plant to raise money “to mitigate our broader equity needs”.\r\nWhat are those “broader equity needs” that had become sufficiently excessive to need mitigating?\r\n \r\nEvans continued:\r\n \r\nWe are also pleased to announce consistent with previous investor\r\ncommunications that we have executed the third-party tax equity\r\nfinancing arrangement for substantially all of Southern Power’s\r\nexisting wind portfolio. This transaction, which we expect to close\r\nbefore year-end 2018 provides $1.2 billion of total proceeds while\r\nretaining our important ownership position in a premium carbon-free\r\nwind portfolio.\r\nThe transaction is expected to be EPS accretive and would offset approximately $1 billion of equity needs for Southern Company.\r\n<\/p>\r\n<\/blockquote>\r\n \r\nOK, that’s the sort of thing Fanning told me back in May was the reason\r\nfor selling off a third of Southern Company’s solar power portfolio.\r\nBut why are they now doing that with wind, as well?\r\n \r\nEvans said more:\r\n \r\nWe also continue to work through the regulatory approval process at\r\nBurke for the sale of Gulf Power and Southern Power’s Plant Stanton\r\nand Oleander. While Gulf Power’s most recent priority has been the\r\nrestoration efforts in the wake of Hurricane Michael, we currently\r\nexpect to close both transactions during the first quarter of 2019.\r\n<\/p>\r\n<\/blockquote>\r\n \r\nWe’ll come back to Gulf Power in a moment.\r\nBut first, more about Mankato:\r\n Paul Fremont<\/strong> — Mizuho — Analyst<\/em><\/p>\r\n \r\nOkay. So the difference is — the difference between the $650 million and the $400 million is all tax-driven?\r\n Andrew Evans<\/strong> — Chief Financial Officer, Executive Vice President<\/em><\/p>\r\n \r\nThat and we also rebalance our capital structure so that we meet our FFO to debt targets and so a portion of proceeds will be used to pay down debt.\r\n Paul Fremont<\/strong> — Mizuho — Analyst<\/em><\/p>\r\n \r\nOkay.\r\n Andrew Evans<\/strong> — Chief Financial Officer, Executive Vice President<\/em><\/p>\r\n \r\nWe try to do all of this — try to calculate all of our sales\r\nbased on the equity reduction knowing that some — that the\r\nproceeds will be used for both purposes, repayment of debt and\r\nreduction of equity need.\r\n<\/p>\r\n Thomas Fanning<\/strong> — Chairman of the Board, President, Chief Executive Officer<\/em>\r\n \r\nAnd recall, the whole $7 billion that we’ve been targeting is really\r\na thicker equity ratio for the company, in general, which gets us\r\nback to the coverage ratios at the Southern level.\r\n<\/p>\r\n Paul Fremont<\/strong> — Mizuho — Analyst<\/em><\/p>\r\n \r\nRight. Okay, so it also relates to your attempting to hit some target of FFO to debt, which I assume is in the 15% range?\r\n Thomas Fanning<\/strong> — Chairman of the Board, President, Chief Executive Officer<\/em>\r\n \r\nThat’s correct. 16%.\r\n<\/blockquote>\r\n \r\nOK, so selling Mankato was to reduce debt.\r\n \r\nDebt for what?\r\n Andrew Evans<\/strong> — Chief Financial Officer, Executive Vice President<\/em><\/p>\r\n \r\nAs a reminder, our initial forecast of post tax reform equity needs\r\nfor 2018 through 2022 was approximately $7 billion. We have\r\nsuccessfully reduced our projected equity need for this period by\r\nmore than $4 billion through our proactive efforts to optimize\r\nequity sources. Additionally, we have already issued approximately\r\n$1 billion of equity through our internal and at-the-market programs\r\nthrough October of this year. Net of the incremental equity for\r\nVogtle that we announced last quarter, our projected remaining\r\nequity needs from now through the end of 2022 are only $2.4 billion.\r\nWe will continue to be thoughtful and strategic as we fulfill these\r\nneeds.\r\n<\/p>\r\n<\/blockquote>\r\n \r\nDebt for Plant Vogtle.\r\n \r\nBack in May when Southern Company sold off a third share of its solar power assets<\/a> and I asked Tom Fanning in the stockholder meeting why he was selling off our seed corn,\r\nhe said news reports linking that to debt from Plant Vogtle were incorrect.\r\nWell, it sure looks like he and Andrew Evans linked both a similar sale of wind assets, and this Mankato gas plant, and the earlier start of sales of\r\ngas plants in Florida, to Plant Vogtle debt.\r\n![](\"https:\/\/www.southerncompany.com\/content\/southern-company\/homepage\/newsroom\/2018\/nov-2018\/southern-power-agrees-sale-mankato-energy-center\/jcr:content\/leftrail\/adaptiveimage.img.full.high.jpg\/1541602212866.jpg\")
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