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Southern Company: Analyzing Trends in Cash Flow from Operations

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Cash flow from operations

Despite near-zero demand growth in the electric business, Southern Company (SO) has maintained fair growth in its cash flow from operations. Its acquisition of AGL Resources (GAS) will improve its energy portfolio. With this purchase, Southern Company can geographically enhance its natural gas operations in New Jersey and Florida. This may have a positive impact on its cash flows.

Many utilities have been showing mixed patterns in their cash generations from operations for the last couple of years. The above chart shows the cash generation from operations trends of top utilities.

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Lower fuel expenses

In the last year, utilities’ expenses on fuel and purchased power have taken a sharp drop due to the fall in natural gas prices. Natural gas prices have corrected more than 50%.

Southern Company’s total fuel and purchased power expenses fell from $5.3 billion in 2014 to $4.4 billion in 2015 for the nine-month period ended September 30, 2015. The $918 million fall was mainly due to lower natural gas and coal prices.

Southern Company has a huge capital expenditure plan for the next two years. Its growing footprint in renewable generation and under-construction nuclear plants may positively impact its cash flow from operations.

The above chart shows a comparison of SO’s cash flow from operations with Duke Energy’s (DUK) and Exelon’s (EXC) cash flows from operations. Southern Company is a part of the S&P 500 ETF (SPY). SPY invests 0.23% of its holdings in Southern Company.

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