Edit Metric
|
||||||||||||||||||||
Details
|
||||||||||||||
Southern Company (SO)Stock (Electric Utilities Industry, Energy Industry, Services Industry)
 With over 42,000 Megawatts of generation capacity, Southern Company (NYSE: SO) is one of the largest electric utilities in the United States, supplying electricity to 4.4 million customers in the Southeast. Despite the overall economic slowdown, the Southeastern states have been more resilient than other parts of the country, buoying Southern's revenues to $15.35 Billion in 2007. As of the second quarter of 2008, the economic condition in the Southeast has soured as unemployment rose from just over 4% to the national average and personal income growth fell from over 12% to slightly below the national average. [1] .About 80% of Kilowatt hour (KWH) sales are to retail customers (customers that pay for electrical usage), while the other 20% is sold in wholesale electricity markets. [2] Wholesale electricity is surplus power generated by utilities that is sold over an electricity market to the highest bidder. Since electricity storage is so difficult to achieve effectively, electric utilities facing unusual spikes in energy demand may choose to purchase surplus electricity from a wholesale electricity market. [3]. Southern's customer base is located primarily in Alabama, Georgia, Florida, Mississippi, and the Carolinas[4]. Southern Company, like other electric utilities, benefits from being a natural monopoly in that NIMBY (Not In My Back Yard) community resistance and the huge cost of building new power plants provide significant barriers to entry for competitors. Additionally, customers have little choice when it comes to who they buy electricity from since their choices are limited by geographical proximity to power companies. Although this should normally give utilities enormous pricing power, rate hikes are heavily limited by government regulation, which makes Southern vulnerable to energy policy changes. Weather also plays an important role in Southern's business. Extremely hot seasons can put strain on an already aging grid while severe weather like hurricanes can wreak havoc on generation facilities as well as transmission services.
[edit] Business OverviewSouthern Company is one of the largest electric utilities in the United States and is one the largest producer of electricity in the Southeast by generation capacity[5]. Southern Company is responsible for $5.4 billion in transmission assets including more than 27,000 miles of transmission lines, 3,400 substations, and more than 300,000 acres of right of way. [6] Through its partnerships and subsidiaries, Southern's energy portfolio includes coal, nuclear, and hydroelectric power generation. Southern Co. plans, designs, builds, operates, and maintains its systems to meet growing demand, and has budgeted $2.3 billion in transmission expenditures through 2008[7]. Southern Co. also operates a wireless telecommunications service through their subsidiary, SouthernLINK Wireless. 
[edit] Business and Financial Metrics
Southern Company supplies electricity to 4.4 Million customers in the Southeastern United States and has a generation capacity of 42,000 Megawatts. Since 2005, Southern Company has steadily increased revenues to $15.35 Billion in 2007, up 7.66% from 2006. Net income rose 8.07% to $1.714 Billion from 2006 to 2007. [10] [edit] Business Segments
[edit] Traditional Operating Companies (93% Revenue, 92.7% Net Income)This segment owns all generation and transmission facilities and supplies both wholesale and retail customers with electricity. It reported $ 14.851 billion, $13.920 billion, and $13.157 billion in revenue for Southern Co. in 2007, 2006, and 2005 respectively. [12]. Southern Company's Traditional power companies include Alabama Power Company, Georgia Power Company, Gulf Power Company and Mississippi Power Company. Retail sales accounted for 81.6% of traditional operating company revenues in the second quarter of 2008, with wholesale accounting for another 15.1% [13] [edit] Southern Power (6.2% Revenue, 7.3% Net Income)This segment's primary responsibility is the wholesale of surplus electricity (5,400 MW[14])to other electric utilities in the region. Southern Power reported $972 million, $777 million, and $78 million in revenue for Southern Co. in 2007, 2006, and 2005 respectively. [15] [edit] Key Trends and Forces[edit] Government RegulationBoth the Federal Government and local government play an enormous role in the heavily regulated energy industry. Especially for utility companies, rates are almost entirely set by regulatory boards, and Southern Company's rates are no exception. Under the Federal Power Act, utility companies' rates are subject to approval by state Public Service Commissions or PSC's. Southern Co.'s cost recovery limits (the amount of storm damage, environmental compliance, and fuel costs Southern Co. can pass on to its clients in addition to its base rate) are also set by PSCs. [16] New regulations in response to the threat of climate change are a threat to Southern's bottom line, especially with 70% of their electric generation coming from coal[17]. Southern Co. spent $469 million on environmental compliance in 2007, up from $260 million in 2006. The company plans to spend an additional $1.389 billion through 2010 to continue to meet environmental standards alone. [18]The company's ability to recover these costs is determined by PSCs. [edit] Federal Energy Regulatory Commission (FERC) Proceedings
[edit] GDP GrowthOne of the most important factors driving Southern's revenue is GDP growth. As the economy expands, electricity demands increase as manufacturing, business, and consumption expands. Although Southern's revenues are closely tied to GDP growth, electric utilities are considered counter-cyclical since electricity is a necessity. In the face of a major recession, the main risk to long-term cash flows is in Southern Co.'s ability to finance its acquisitions. [edit] Population GrowthSouthern Co.'s customer base is mostly driven by population growth, particularly in Alabama and Georgia. As local populations expand, Southern Co. gains new retail customers, which drives revenues. The company serves retail customers outside of Alabama and Georgia, but most of its operations outside these two states involve wholesale power. [edit] WeatherIn 2005, Southern Co. spent twelve days repairing and replacing 322 transmission towers, 2,500 miles of power lines, 10,376 power poles, and 65 percent of local transmission facilities that were destroyed by hurricane Katrina[23]. Southern Co. estimated the total recovery cost of Hurricane Katrina to be $302.4 million. As of June 1, 2007, has secured approval from regulators permitting them to fully recover these costs. [24] Hurricanes and other severe weather can be huge setbacks for large utilities, especially Southern Co. with its 120,000 acres of serviced territory in the Southeast, an area at high risk of hurricane damage. More frequently, however, hot weather and the accompanying spike in consumption from mass air conditioning can be a problem for some electric utilities. [edit] CompetitionSouthern Company is one of the largest electric utilities in the United States, and the largest in the Southeast. Due to its sheer size in its territory, Southern is well protected from competitors for its retail clients. Southern produces such high levels of excess capacity that they rarely have to purchase any power from competitors. In 2007, Southern Co. sold 204.4 billion KWHs of which only 8 billion had been purchased[25]. Still it faces fierce competition in its wholesale business, particularly in areas where competitors are expanding capacity. Its top local competitors are as follows:
[edit] References
|
The Shelf
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Edit
History
Bookmark
