Fitch Rates Georgia Power Senior Notes 'A+'; Outlook Stable
NEW YORK -- March 14, 2013
Fitch Ratings has assigned an 'A+' rating to Georgia Power Company's (Georgia
Power) issuance of $400 million series 2013A 4.30% senior notes due March 15,
2043. Fitch has also assigned its 'A+/F1' rating to Georgia Power's series
2013B floating rate senior notes due March 15, 2016. These notes are senior,
unsecured obligations of Georgia Power. The Rating Outlook is Stable.
The net proceeds from the two offerings will be used for the redemption at
maturity of Georgia Power's $350 million series 2010A floating rate senior
notes, to repay a portion of its outstanding short-term indebtedness, and for
general corporate purposes, including the ongoing construction program at the
KEY RATING DRIVERS:
Georgia Power's ratings are supported by the solid financial profile of the
integrated utility which benefits from constructive regulation in Georgia that
limits regulatory lag. Currently, the utility is in the midst of a significant
capital program that includes the construction of two new nuclear units at the
Vogtle site. The execution risk associated with this significant project and
the attendant external financing needs are also considered in the ratings. The
Stable Outlook reflects the expectation that the company will continue to
receive constructive regulatory treatment of the pre-approved projects
including recovery of costs during the construction period.
In its eighth semi-annual Vogtle Construction Monitoring (VCM) report filed
with the Georgia Public Service Commission (GPSC) on Feb. 28, 2013, Georgia
Power has requested an amendment to increase the estimated in-service capital
cost of the Vogtle units by $381 million to $4.8 billion and to extend the
estimated in-service dates to fourth quarter 2017 and fourth quarter 2018 for
Vogtle units 3 and 4, respectively. The financing costs during the
construction period are estimated to be $2 billion. Separately, Georgia Power
and the other owners of the Vogtle 3 and 4 units are engaged in litigation
with the contractors over the costs associated with the design changes to the
Design Control Document (DCD), delays in receiving approval of the DCD, and
issuance of a combined construction and operating license by the Nuclear
Regulatory Commission (NRC). Fitch expects that any adjustments to the overall
project costs are deemed recoverable by the GPSC. Significant project cost
overruns that cannot be recovered in rates or unexpected long deferral periods
for project cost recovery would be adverse credit factors.
Georgia Power's annual capex is forecast to be in the $2.2 billion-$2.4
billion range over 2013-2015, or approximately 3x depreciation. This is high
relative to peer utilities and is primarily driven by Georgia Power's share of
Vogtle costs. In addition, Georgia Power anticipates spending approximately
$1.1 billion in environmental capex over 2013-2015 for compliance with the
Mercury and Air Toxics Standards (MATS) rule. While Georgia regulations do not
allow for automatic recovery of environmental costs, Georgia Power has
historically been granted adequate rate relief on its environmental capex.
Georgia Power's revenue increases resulting from the December 2010 base rate
settlement, bonus depreciation, and significant fuel recoveries have resulted
in strengthening of cash flow credit measures. This has allowed Georgia Power
to embark on a heavy capital investment program with strong credit metrics.
Fitch expects bonus depreciation benefits to continue to boost funds from
operations (FFO) in 2013 and 2014.
Georgia Power's FFO interest coverage ratio was 7.4x for the year ended Dec.
31, 2012, and FFO to adjusted debt was 25.0%. Fitch anticipates a gradual
decline in Georgia Power's credit metrics until 2014 under its current
three-year rate settlement, reflecting the pressure from a large construction
program. Fitch forecasts Georgia Power's adjusted debt to EBITDA and FFO to
adjusted debt to be approximately 3.3x and 21.5%, respectively, in 2014. The
sales growth at Georgia Power has slowed somewhat in 2012 due to the rising
uncertainty around economic growth. Persistently weak sales could put
additional pressure on credit metrics through 2014.
Vogtle Project Execution: Successful execution of nuclear plant construction
and continued regulatory support are key to maintaining rating stability at
Georgia Power. In this regard, Fitch will continue to monitor the construction
timelines, frequency and nature of any license amendment requests to the NRC,
outcome of the 8th VCM report, potential escalations in the estimated
in-service capital costs and/or in-service dates, and outcomes of future VCM
reports filed by Georgia Power at the GPSC. Cost overruns or delays in the
Vogtle project could pressure cash flow and ratings.
Rate Case Outcome: Georgia Power is required to file a rate case by the middle
of 2013 for rates to be effective January 2014. Any adverse outcome in future
rate proceedings or any adverse change in Georgia Power's relations with the
GPSC, which are currently not anticipated, could also likely lead to negative
Positive Rating Actions Unlikely: Positive rating actions for Georgia Power
are considered unlikely while the Vogtle project is underway.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--Recovery Ratings and Notching Criteria for Utilities (November 2012)
--Corporate Rating Methodology (August 2012)
--Rating North American Utilities, Power, Gas, and Water Companies (May 2011).
Applicable Criteria and Related Research
Rating North American Utilities, Power, Gas, and Water Companies
Corporate Rating Methodology
Recovery Ratings and Notching Criteria for Utilities
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Shalini Mahajan, CFA
Fitch Ratings, Inc.
One State Street Plaza
New York, NY, 10004
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