By David Pendered
The Southern Co.’s aggressive sales of assets helped it retain its credit rating, despite financial losses at Georgia Power that relate to Plant Vogtle. Those losses prompted Moody’s Investors Service to downgrade Georgia Power’s credit rating.
Moody’s issued guidance that affects over $30 billion of debt and credit facilities in a rating action released Wednesday.
The action also noted the positive impact resulting from steps taken by utility regulators to manage through the impact of the federal tax reform approved in 2017.
In an earnings call on Wednesday, Southern Co. Chairman, President and CEO Thomas Fanning outlined asset sales that have closed this year and two that are expected to close in 2019. The total value exceeds $4.7 billion:
- “In May, we completed the sale of a 33 percent minority interest stake in Southern Power solar portfolio and we completed the sale of Pivotal Home Solutions in June. In July, we closed the sales of Elizabethtown Gas, Elkton Gas and Florida City Gas. Cumulatively, these transactions accounted for more than $3.7 billion in proceeds.
- “We have completed the appropriate FERC [Federal Energy Regulatory Commission] filings for the sales of Gulf Power and Southern Power’s plants Stanton and Oleander. These regulatory approvals are expected to drive the timing for closing on these transactions. Our current expectation is that both transactions will close during the first half of 2019.
- “We are also making great progress on third-party tax equity financing for the vast majority of Southern Power’s existing wind portfolio, which we expect to produce more than $1 billion in proceeds. We hope to close this transaction during the fourth quarter of 2018.”
These transactions were noted by Moody’s analysts, who observed in their rating action:
- “The affirmation of Southern’s Baa2 rating reflects management’s pro-active efforts to strengthen the company’s balance sheet through equity issuances and asset sales, and the largely credit supportive actions taken by most of its state regulators in response to cash flow pressure at the utilities resulting from the passage of federal tax reform.
- ”We view these positive developments as largely offsetting the latest negative developments at Georgia Power and the Vogtle project and sufficient to affirm Southern’s rating at Baa2.”
The rating action underscores the extent to which the utilities and their parent company are grappling with complications in construction projects.
The woes at Plant Vogtle are well known. Following the bankruptcy filing by Westinghouse, a major partner, Georgia Power is addressing workforce challenges that are likely to affect the ability to bring Vogtle’s two nuclear plants on line, in November 2021 and November 2022.
Brighter news has emerged from Mississippi Power. The company was on track to complete construction the Kemper Integrated Gasification Combined Cycle plant. It was on track to resolve cost recovery issues associated with the plant, and the received a $1 billion contribution from Southern.
The three events prompted Moody’s in September 2017 to declare the company’s credit outlook as stable.
In the rating action released Wednesday, Moody’s provided the following credit rating to Southern, Georgia Power and Mississippi Power:
- “Medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.”
Alabama Power received a rating that is:
- “Judged to be upper-medium grade and … subject to low credit risk.”