Fitch Rates Georgia Power Senior Notes 'A+/F1'; Outlook Stable
NEW YORK -- August 14, 2013
Fitch Ratings has assigned its 'A+/F1' rating to Georgia Power Company's
(Georgia Power) issuance of $200 million series 2013C floating rate senior
notes due Aug. 15, 2016. These notes are senior, unsecured obligations of
Georgia Power. The Rating Outlook is Stable.
The net proceeds from the offering will be used to repay a portion of Georgia
Power's outstanding short-term indebtedness and for general corporate
purposes, including the continuous construction program at the company.
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 PSC on Feb. 28, 2013, Georgia Power 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. According to a recent stipulation reached with the PSC Staff, Georgia
Power will not seek recertification of the original costs and/or schedule
until the completion of Unit 3 and will withdraw this request included in the
eighth VCM. Hearings are in progress and the PSC is expected to rule on the
eighth VCM on Oct. 15, 2013.
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
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 will be deemed recoverable by the Georgia PSC.
Significant project cost overruns that cannot be recovered in rates or
unexpected long deferral periods for project cost recovery would be adverse
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 mostly 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 it 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 recently filed its base rate case for
rates to be effective 2014. The filing requests a $482 million or 6.1% rate
increase based on a return on equity (ROE) of 11.5%. Staff and intervenor
testimony is due in October with the final PSC decision on or before Dec. 17,
2013. Fitch expects a constructive resolution to Georgia Power's rate case
with the assumption that the PSC will continue to be supportive of the
financial health of the utility.
Fitch anticipates a gradual decline in Georgia Power's credit metrics until
2015 reflecting the pressure from a large construction program despite
expectations of a constructive outcome in the pending rate proceeding. Fitch
forecasts Georgia Power's adjusted debt to EBITDA and FFO to adjusted debt to
be approximately 3.2x and 21.5%, respectively, in 2015. The sales growth at
Georgia Power has lagged expectations due to continued weakness in residential
and commercial electric demand. Persistently weak sales could put additional
pressure on credit metrics through 2015.
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 eighth 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 Georgia PSC. Cost overruns or delays in
the Vogtle project could pressure cash flow and ratings.
Rate Case Outcome: Any adverse outcome in the pending rate case or any adverse
change in Georgia Power's relations with the Georgia PSC, which are currently
not anticipated, could also likely lead to negative rating actions.
Positive Rating Actions Unlikely: Positive rating actions for Georgia Power
are considered unlikely while the Vogtle project is underway.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 5, 2013;
--'Parent and Subsidiary Rating Linkage', Aug. 5, 2013;
--'Short-Term Ratings Criteria for Non-Financial Corporates', Aug. 5, 2013;
--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis', Dec. 13, 2012;
--'Recovery Ratings and Notching Criteria for Utilities', Nov. 13, 2012;
--'Rating North American Utilities, Power, Gas and Water Companies', May 16,
Applicable Criteria and Related Research:
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Recovery Ratings and Notching Criteria for Utilities
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Parent and Subsidiary Rating Linkage Fitch - Approach to Rating Entities
within a Corporate Group Structure
Short-Term Ratings Criteria for Non-Financial Corporates
Rating North American Utilities, Power, Gas, and Water Companies
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Shalini Mahajan, CFA
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Additional information is available at 'www.fitchratings.com'.
Brian Bertsch, +1-212-908-0549
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