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A Look at Southern Company’s 2Q17 Earnings and Power Plant Woes

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A Look at Southern Company’s 2Q17 Earnings and Power Plant Woes PART 2 OF 5

Southern Company’s 2Q17 Earnings and Its Power Plant Woes

Southern Company’s earnings

Atlanta, Georgia–based Southern Company (SO) reported earnings per share (or EPS) of $0.73 for 2Q17 against its EPS of $0.75 in 2Q16.

The utility’s 2Q17 earnings exclude the impact of the estimated loss on the Kemper County power plant, which came in at $3 billion for the quarter. Including these charges, Southern Company posted a loss of $1.38 per share in 2Q17 against EPS of $0.67 in 2Q16.

Southern Company’s 2Q17 Earnings and Its Power Plant Woes

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Earnings drivers

Southern Company’s operating and maintenance expenses during the quarter were ~$7.0 billion, a sharp increase from $3.3 billion in 2Q16. Southern Company incurred $3.0 billion in the quarter as an estimated loss on the Kemper County IGCC (integrated gasification combined cycle) plant after frequent delays and cost overruns.

In June 2017, Mississippi regulators rejected Southern Company’s proposal to pass on the additional costs involved in converting the plant to run wholly on gas to ratepayers.

The one-of-its-kind Kemper County power plant, which is based on integrated gasification combined cycle technology, was designed to convert coal into synthetic gas and captures carbon emissions. The original cost estimate of the Kemper plant was $3.0 billion, but after running more than three years behind schedule, the plant’s costs shot past $7.5 billion.

Vogtle woes

Southern Company also mentioned during its 2Q17 earnings that its cost of the Vogtle nuclear power plant has increased to $25 billion. The utility is still thinking of continuing the project after incurring huge cost overruns in the last few years, despite the grimmer picture of nuclear power generation in the country. Its principal contractor, Westinghouse, went bankrupt early this year. Southern Company projects the plant to be completed by February 2021.

Southern Company reiterated its 2017 annual guidance range of $2.90–$3.02 per share with a long-term earnings growth target of 5% annually, which is in line with the industry average (XLU).

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