Southern Company Plans $17.9 Billion Capital Program for 2016-2018

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The Southern Company (NYSE:SO) (Atlanta, Georgia), one of the nation's largest utilities, has shared with investors its three-year, $17.9 billion capital spending plan. That sum excludes the $8 billion Southern plans to spend to acquire AGL Resources Incorporated (NYSE:GAS) (Atlanta, Georgia), a gas utility with operations in the Southeast and Midwest.

In 2016, Southern plans to invest about $7.3 billion in its power plants (both regulated and unregulated), transmission lines and distribution networks, company officials told fixed-income investors April 1. Next year it intends to invest roughly $5.2 billion in those assets, while in 2018 it expects to invest approximately $5.5 billion in its businesses.

On a business-segment basis, over the next three years, Southern expects to invest:

• Up to $5 billion in Southern Power, the company's merchant generation unit
• $2.5 billion in distribution
• $2.5 billion to maintain its regulated generation fleet
• $2.3 billion in new regulated generation
• $2 billion in transmission
• $1.8 billion in environmental upgrades
• $1.1 billion in other project
• $800 million in nuclear fuel

Southern's largest capital commitment is adding two units to its existing Vogtle Nuclear Power Station. The first new unit is expected to begin operating in the second quarter of 2019, while the second is scheduled to generate electricity one year later, in the second quarter of 2020, company officials said April 1. The current estimated cost to build those two units, which total 2,234 megawatts (MW), is about $16.2 billion, at least $1 billion over the original estimated cost. The units' in-service date is nearly three years later than the utility originally planned. Southern subsidiary Georgia Power (Atlanta, Georgia) owns about 45.7% of the two new Vogtle units.

Another Southern subsidiary, Mississippi Power (Gulfport, Mississippi), is in the final stages of constructing an integrated gasification combined cycle (IGCC) generator in Kemper County, Mississippi. That project, too, is significantly over budget and behind schedule. That project, originally scheduled to be operating in 2014, is now scheduled to come online sometime this year. Its current cost estimate, over $6 billion, is roughly double the $2.88 billion cap that Mississippi utility regulators have imposed on the 582-MW, first-of-its-kind project. Southern Company will absorb the costs above that cap. For more on that project, see January 16, 2015, article--Costs for Kemper County IGCC Plant Soar to $6.1 Billion.

Other major Southern Company capital projects during the 2016-2018 timeframe include:

• Ganado Generating Station, a 920-MW power plant scheduled to be built in Texas. This $800 million project is anticipated to begin construction in mid-2017 and be operating by mid-2019. Southern Power, Southern's competitive generation subsidiary, is building that plant.
• The Victor J. Daniel Jr. Power Station in Mississippi is scheduled to have selective catalytic reduction (SCR) equipment installed to lower emissions of nitrogen oxides (NOx). That $550 million project is expected to begin construction in spring 2018, and the unit is scheduled to resume operations in early 2022.
• Georgia Power is installing a baghouse at its Bowen Steam Electric Generating Station, a $520 million project that is nearly complete. Bowen is a 1,594-MW plant located in Cartersville, Georgia.
• Southern Power is constructing a 205-MW solar project in Florida. The Garland PV Solar Plant is expected to begin operating by yearend 2016. It will cost an estimated $410 million to build.
• Alabama Power (Birmingham, Alabama), another Southern subsidiary, is installing particulate controls at Units 8, 9 and 10 of its William Crawford Gorgas Power Station, located in Parrish, Alabama. This $330 million project is scheduled to be completed this year.

Farther out, beyond the 2016-2018 timeframe, Southern Power plans to construct the Trinidad Generating Station, another Texas generator. Construction of this 530-MW, $530-million combined cycle power plant is anticipated to start in early 2019, and the plant should be generating electricity by the end of 2021.

Southern has made, and is continuing to make, hefty investments to rebalance its generating portfolio. In 2000, about 66% of its generating capacity burned coal. By 2020, it projected gas will account for about 49% of generating capacity, up from 15% in 2000, and nuclear will account for 13% of capacity, up from 11% in 2000. On an energy basis, 78% of Southern's electricity came from coal in 2000. By 2020, the company told investors only 21% of its electricity will come from coal. Gas will account for 55% of the company's electricity by 2020, it projected.

"Southern Company has committed $20 billion to developing a full portfolio of low- and zero-emissions generating resource," company officials told investors April 1. "Roughly 90% of our earnings come from regulated subsidiaries, and we follow four simple rules--Keep the lights on, make it affordable, give great service and be a positive force."

Delivering on those four simple rules leads to "a constructive regulatory climate," which is critical for utilities with large capital budgets, officials said. "Our customer-focused business model leads to constructive regulatory environments."

Click the icon at right to see a graphic depicting how Southern Company and its affiliates envision their business.

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