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Southern Company Sees Industrial Sales Decline, Bullish On Demand Growth For 2016

Southern Company said Wednesday that positive retail revenue effects from its regulated subsidiaries and successful renewable energy projects at its wholesale subsidiary Southern Power helped offset a year/year decline in industrial sales and a very warm December.

Announcing its 4Q2015 results Wednesday, the Atlanta-based electric utility giant reported a year/year, weather-adjusted increase in retail sales of 0.3% in full-year 2015, with modest growth in residential and commercial sales offsetting a 0.3% decrease in industrial sales.

Southern said it forecasts total retail sales to grow 1.1% in 2016.

“We experienced a modest deceleration in industrial growth in our region as a result of the strong dollar, low oil prices and low natural gas prices, and significant economic slowdown in China and other emerging markets,” CFO Arthur Beattie told analysts during a conference call Wednesday. Beattie went on to note that the “regional economy remains in a positive growth mode.

“During our most recent economic roundtable, the consensus of the participants was the economy will grow in 2016 supported by robust employment and spending growth, modest income gains and a steady housing recovery, all pointing to further growth in energy demand.”

Beattie alluded to the recent extension of a number of investment tax credits that will provide “significant uplift” for Southern Power. The benefits will come from several generation investments in nuclear and clean coal technology “along with a variety of renewable energy projects and environmental compliance investments,” he said.

Beattie said the utility forecasts $5 billion in capital expenditures (capex) for 2016-2018 in wind, solar and traditional natural gas generation projects for its Southern Power subsidiary.

The investment tax credits will result in a “greatly improved” value proposition for Southern Power moving forward, he said. “Anticipating continued success at Southern Power, we are excited about the possibilities that exist with the extension of tax benefits for both wind and solar projects. We have enjoyed a higher than anticipated growth from Southern Power in recent years. In fact, a year ago, our 2015-2017 capex forecast was approximately $3 billion.”

Last year, Southern announced plans to acquire AGL Resources (see Daily GPI, Aug. 24, 2015) in a move that would see the company increase its participation in gas infrastructure development.

CEO Thomas Fanning said the AGL transaction is expected to close in the second half of 2016 and that “activities related to the proposed merger are progressing in a timely fashion.” AGL’s shareholders approved the merger in November, though it “remains subject to certain other customary closing conditions, including state regulatory approvals, and we are currently engaged in regulatory proceedings before the various state commissions.”

Southern saw its generation portfolio shift to gas during the quarter and for full-year 2015. Southern derived 52% of its generation from gas during the quarter, compared to 49% in the year-ago quarter. For full-year 2015, 47% of Southern’s generation mix was gas, compared to 40% in 2014, according to the utility.

Beattie said the company’s current capex projections do not include the AGL acquisition.

He said Southern’s “expected cash coverage of dividends is greatly improved compared to how we characterized our dividend growth at the time of the AGL Resources merger announcement.”

Southern reported a net income for 4Q2015 of $271 million (30 cents/share), compared to $283 million (31 cents/share) in the year-ago quarter. Full-year 2015 net income was $2.367 billion ($2.60/share), compared to $1.963 billion ($2.19/share) in full-year 2014.

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