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A Closer Look at Southern Company’s Kemper Power Plant

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Nov. 20 2020, Updated 5:15 p.m. ET

Southern Company looks ahead

Southern Company (SO), one of the largest regulated utilities, finished 2016 on a decent note, based on a few acquisitions and an increased customer base. Its flat per share earnings growth in 2016 YoY (year-over-year) were expected and resulted largely from share issuances to fund its AGL Resources deal and bonus depreciation.

Notably, during Southern Company’s 4Q16 earnings, the darkest spot in its performance—the Kemper County Power Plant—again became a highlight that has raised concerns regarding the company’s prospects.

Southern Company stock has lagged behind peers for the past few months but has managed to gain 8% in the last three months. During that period, the Utilities Select Sector SPDR (XLU) rose more than 11%, while broader markets (SPY) (SPX-INDEX) gained 8%.

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A new headache?

After frequent delays and cost increases in construction, Southern Company’s Kemper County plant’s economics have stolen the focus this time. The plant is expected to be competitive only if natural gas prices are high. Southern Company is reported to have done a viability analysis at natural gas prices at $5 per MMBtu (million British thermal unit). However, according to the EIA (Energy Information Administration) forecast, gas prices may not reach $5 until 2030.

Southern Company is set to complete the Kemper County plant next month after seven years of construction at a cost of $7.1 billion. In 2010, the plant was forecasted to cost $3 billion.

On a positive side, Southern Company is targeted to grow its earnings by 5% in the longer term, which is marginally higher than the industry average. Southern Company is planning to file rate cases for the plant’s incremental costs to be passed on to ratepayers.

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