{"id":4974,"date":"2013-08-01T10:32:35","date_gmt":"2013-08-01T14:32:35","guid":{"rendered":"http:\/\/www.l-a-k-e.org\/blog\/?p=4974"},"modified":"2013-08-01T10:35:06","modified_gmt":"2013-08-01T14:35:06","slug":"southern-company-missed-earnings-on-kemper-coal-but-plant-vogtle-is-dominant","status":"publish","type":"post","link":"http:\/\/www.l-a-k-e.org\/blog\/2013\/08\/southern-company-missed-earnings-on-kemper-coal-but-plant-vogtle-is-dominant.html","title":{"rendered":"Southern Company missed earnings on Kemper Coal but Plant Vogtle is dominant"},"content":{"rendered":"

\r\nThe dominant financial consideration\r\nis “what’s going to happen with Georgia”,\r\nmeaning with nuclear Plant Vogtle,\r\n\r\n<\/a>\r\nsaid SO CEO Tom Fanning, referring to\r\n\r\nthe GA PSC CWIP monitoring hearings currently in progress<\/a>.\r\nMeanwhile, that \r\n$160 million estimate 2 July 2013 of more Kemper Coal cost overruns<\/a>\r\nby 30 July turned into \r\n$278 million after taxes (AP)<\/a>.\r\n\r\nThis is on top of\r\n\r\n$333 million after taxes in May<\/a>.\r\nSO earnings fell 52% (WSJ)<\/a>, missing projections, and SO stock dropped 2% yesterday.\r\n

\r\n\r\n<\/a>\r\n\r\nRemember GA PSC Tim Echols\r\n\r\nalready suggested a Plant Vogtle cost overrun cap<\/a>\r\nsimilar to the one Mississippi PSC applied to Kemper Coal that caused\r\nSO to have to eat all those costs.\r\nIf that happens, SO’s got financial problems.\r\n

\r\nHas SO seen the solar light yet, as in reliable, dependable, and deployable\r\non time and on budget?\r\nNope.\r\nSolar was tacked onto the end of\r\n\r\nTom Fanning’s summary of interesting stuff\r\nin the 31 July 2013 earnings call<\/a>:\r\n

\r\n

\r\n\r\n<\/a>\r\nSo that’s positive. We’ve made a huge shift away from coal to gas to\r\nwhere we used to be 70% energy from coal, now we’re 45% with gas.\r\nwe’re the third largest consumer of natural gas in United States. We\r\nhave extended our reach either through ownership or through\r\ncontracts with now about 1,200 megawatts in about the last 12 months\r\nin terms of renewable, that’s for procuring wind energy and either\r\nprocuring solar, or owning solar. When you consider that plus what\r\nwe’ve already been doing in terms of energy efficiency. It’s easy\r\nfor me to say that it would be hard to find somebody that’s doing\r\nmore in terms of kind of handling the GHG issue in a very practical\r\n— both tactical and strategic way.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nThat’s right, he’s taking credit for\r\n\r\nthe 525 MW of solar power GA PSC forced Georgia Power to acquire<\/a>.\r\nBut he ranks it below natural gas for dealing with GHG, i.e., Greenhouse gases,\r\ni.e., climate change. Nevermind natural gas is methane which when\r\nit leaks is much worse than CO2 as a greenhouse gas.\r\n<\/p>\r\n

\r\nSO CFO Art P. Beattie provided a suummary of Kemper Coal charges:\r\n

\r\n

\r\n\r\n<\/a>\r\nFor the second quarter of 2013, we earned $0.34 per share compared\r\nto $0.71 per share in the second quarter of 2012, a decrease of\r\n$0.37 per share. For the six months ended June 30, 2013, we earned\r\n$0.43 per share compared to $1.14 per share for the same period in\r\n2012, a decrease of $0.71 per share. Our results for the second\r\nquarter 2013 include an after-tax charge against earnings of $278\r\nmillion or $0.32 per share related to the increased cost estimates\r\nfor construction of the Kemper project. Recall that for the first\r\nquarter of 2013, we announced a similar after-tax charge of $333\r\nmillion, or $0.38 per share. This brings the total of after-tax\r\ncharges related to the Kemper project to $611 million or $0.70 per\r\nshare for the six months ended June 30, 2013.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nThen Beattie blamed record Q2 2013 rainfall in Georgia and Alabama:\r\n

\r\n

\r\nWhile this lower temperatures and contributed negatively to our\r\nearnings, it also enabled us to increase hydroelectric generation by\r\nmore than 400% compared to the second quarter of 2012.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nThat’s right, Southern Company lost money because you didn’t have to\r\nrun your air conditioner as much.\r\n<\/p>\r\n

\r\nHere’s another financial risk of Kemper Coal:\r\n

\r\n

\r\n\r\nPaul Patterson \u2013 Glenrock Associates, LLC\r\n<\/strong>\r\n

\r\nFirst of all, if the Kemper schedule for coming online slips past to 2014 spring deadline, what happens to the deal we subsidy? Is there any risk there or\u2026\r\n

\r\n\r\nThomas A. Fanning\r\n<\/strong>\r\n

\r\nWell, you lose them.\r\n

\r\n\r\nPaul Patterson \u2013 Glenrock Associates, LLC\r\n<\/strong>\r\n

\r\nYou lose them for sure?\r\n

\r\n\r\nThomas A. Fanning\r\n<\/strong>\r\n

\r\nYou lose ITC.\r\n

\r\n\r\nPaul Patterson \u2013 Glenrock Associates, LLC\r\n<\/strong>\r\n

\r\nOkay.\r\n

\r\n\r\nThomas A. Fanning\r\n<\/strong>\r\n

\r\nNot the deal DOE stuff, I’m sorry. So, the $133 million investment tax credit is what you would lose, I’m sorry I thought you were referring to\r\n

\r\n\r\nPaul Patterson \u2013 Glenrock Associates, LLC\r\n<\/strong>\r\n

\r\nOkay\r\n<\/blockquote>\r\nBut on to Plant Vogtle:\r\n

\r\n

\r\n\r\nPaul Patterson \u2013 Glenrock Associates, LLC\r\n<\/strong>\r\n

\r\nOkay, and then just in terms of long-term EPS growth and I know this\r\nis, I think Ali and Greg were asking about this. Just to understand\r\nthis, I mean you did mention that it’s a regulatory year obviously,\r\nthings with Kemper didn’t work out exactly as we had previously\r\nexpected, is the 4% to 6% growth I know that you guys usually\r\naddress this in the fourth quarter. But I mean, you did mention to\r\nPaul Ridzon that you were sort of reiterating the guidance when\r\nasked in terms of 2013, in terms of your confidence. How should we\r\nthink about your confidence for the 4% to 6% growth in January, if\r\nyou could just elaborate a little bit more on that just in terms of\r\nhow do you feel about that given all the stuff that’s been\r\nhappening?\r\n<\/p>\r\n

\r\n\r\nThomas A. Fanning\r\n<\/strong>\r\n<\/p>\r\n

\r\n\r\n<\/a>\r\nWell, yeah, I think, I would say what I said before, I appreciate\r\nyou asking again. The most dominant thing is what’s going to happen\r\nwith Georgia. The second most dominant thing is what’s going to\r\nhappen with Georgia. The second most dominant thing is what’s going\r\nto happen with Alabama. I think we’ve separated out the effects of\r\nKemper, $0.015 this year, $0.025 independent, $0.04 in the aggregate\r\nnext year, et cetera. I mean, we’ve been through that. So my view\r\nis, I’m just a little reluctant. I guess, what I’m saying is our 4%\r\nto 6% remains until I see a reason to change it, and I’m not going\r\nto change it until I see what happens with these regulatory calendar\r\nthat we have in front of us in 2013.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nSO already got downgraded again\r\n\r\n16 July 2013 by a SeekingAlpha Equity Watch investor<\/a>:\r\n

\r\n

\r\nI believe the uncertainties concerning pending rate cases and\r\nongoing development projects poses a risk to future financial\r\nperformance of SO and hence for the stock price. Therefore, I\r\nrecommend “hold” rating on the stock.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nWho will downgrade SO next because of this latest Kemper Coal writeoff?\r\n<\/p>\r\n

\r\nCould it be Goldman Sachs?\r\n

\r\n

\r\n\r\nMichael J. Lapides — Goldman Sachs & Co.\r\n<\/strong>\r\n<\/p>\r\n

\r\nHey, Tom, just a follow-up on Vogtle, real quick. I want to make\r\nsure I understand the stipulation you guys signed today.\r\n<\/p>\r\n

\r\n\r\nThomas A. Fanning\r\n<\/strong>\r\n<\/p>\r\n

\r\nYeah.\r\n<\/p>\r\n

\r\n\r\nMichael J. Lapides — Goldman Sachs & Co.\r\n<\/strong>\r\n<\/p>\r\n

\r\nEvery six months, will you all simply go in and ask for approval of\r\nthe money you spend the prior six months on the plant and you won’t\r\ncome in and give the commission an update on here is what we expect\r\nthe total plant costs to be overall meaning till the end of\r\nconstruction or will that last data point still be given to the\r\ncommission?\r\n<\/p>\r\n

\r\n\r\nArt P. Beattie\r\n<\/strong>\r\n<\/p>\r\n

\r\nYes. You know, this is…\r\n<\/p>\r\n

\r\n\r\nMichael J. Lapides — Goldman Sachs & Co.\r\n<\/strong>\r\n<\/p>\r\n

\r\nNo, it’s Michael, I’m sorry.\r\n<\/p>\r\n

\r\n\r\nArt P. Beattie\r\n<\/strong>\r\n<\/p>\r\n

\r\nI’m sorry, Michael, I forgot. The way we think about it is there\r\nwill still be communications with the commission about total costs.\r\nAnd we’ll still file those projections with them, but the actual\r\napproval will come in each of the six-month processes as Tom has\r\ndescribed.\r\n<\/p>\r\n

\r\n\r\nThomas A. Fanning\r\n<\/strong>\r\n<\/p>\r\n

\r\nThat’s right.\r\n<\/p>\r\n

\r\n\r\nMichael J. Lapides — Goldman Sachs & Co.\r\n<\/strong>\r\n<\/p>\r\n

\r\nGot it.\r\n<\/p>\r\n

\r\n\r\nArt P. Beattie\r\n<\/strong>\r\n<\/p>\r\n

\r\nAnd all that, Michael, you should know was hand in glove, we have an\r\nindependent evaluator. It’s exactly the processes that we’ve been\r\nfollowing so far through VCM 1 through 7 and the process we’re\r\nfollowing now with the exception we are not going to do the\r\nrecertification, with a 5% cost figure includes.\r\n<\/p>\r\n

\r\n\r\nMichael J. Lapides — Goldman Sachs & Co.\r\n<\/strong>\r\n<\/p>\r\n

\r\nGot it, okay. So, it’s strictly not having to go through the formal\r\nprocess of getting commission approval, but they will still be the\r\ndisclosure in the public domain about whether the cost has gone\r\ndown, due to construction or due to lower financing costs or whether\r\n— kind of your long-term projection of the total plant cost?\r\n<\/p>\r\n

\r\n\r\nArt P. Beattie\r\n<\/strong>\r\n<\/p>\r\n

\r\nThat’s correct.\r\n<\/p>\r\n

\r\n\r\nMichael J. Lapides — Goldman Sachs & Co.\r\n<\/strong>\r\n<\/p>\r\n

\r\nOkay. Thank you, guys.\r\n<\/p>\r\n

\r\n\r\nThomas A. Fanning\r\n<\/strong>\r\n<\/p>\r\n

\r\nThank you, Mike.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nThat sounds like investor-speak for Goldman Sachs doesn’t believe Vogtle costs\r\nwill meet SO’s total estimates.\r\n\r\nForbes ranks<\/a>\r\nGoldman Sachs\r\n\r\nVP Michael Lapides<\/a>\r\n#3 among stock pickers in Multi-Utilities.\r\n

\r\nMaybe we the public should watch those total estimates closely to see\r\nhow much they slip.\r\n<\/p>\r\n

\r\nDear Tom Fanning,\r\n

\r\n\r\n<\/a>\r\nIt’s time to stop being\r\n\r\ntepid and timid<\/a> and living in the past of thermal generation,\r\nwhether coal, natural gas, or nuclear.\r\nYou can lead the southeast and the country and the world into\r\ndistributed wind and solar generation.\r\n<\/p>\r\n

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