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How Is Southern Company Bracing for the Clean Power Plan?

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AGL Resources acquisition

On August 24, 2015, Southern Company (SO) agreed to acquire AGL Resources (GAS) for $8 billion in cash. The deal is valued at $12 billion, including AGL Resources’ debt. Southern Company agreed to pay $66 per share in cash to AGL Resources’ shareholders. AGL Resources’ stock rose 26.50% between the deal announcement and September 18, 2015. However, at $60.55 on September 18, the stock was still lower than the acquisition price.

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About AGL Resources

Through its subsidiaries, AGL Resources provides various energy services including gas distribution, wholesale and retail operations, and midstream operations. AGL Resources serves 4.5 million customers in Georgia, Tennessee, Maryland, Florida, New Jersey, Illinois, and Virginia through over 80,000 miles of gas pipeline and 14 gas storage facilities.

How will Southern Company benefit?

The deal is Southern Company’s attempt to move away from coal. As we discussed earlier, Southern Company is coal heavy with 40% of its total electricity generation coming from its coal-fired power plants. The plants are under the lens of the CPP (Clean Power Plan). Acquiring AGL Resources will help Southern Company secure access to natural gas. In turn, this will help the company in its goal to increase natural gas’ share in its generation mix to 55% by 2020 from the current 40%. At the same time, the company expects to reduce coal’s share in its generation mix to 21% by 2020 from current 40%.

The deal will also make Southern Company the second-largest public utility (XLU) company in the US by customers after Exelon (EXC). It’s also going strong on solar (TAN). It acquired solar power projects in California from FirstSolar (FSLR).

What are supporters of the CPP saying? We’ll discuss this in the next part.

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