Georgia Power's Rate Order Neutral to Ratings

  Georgia Power's Rate Order Neutral to Ratings

Business Wire

NEW YORK -- December 17, 2013

Fitch Ratings sees no ratings impact for Georgia Power Company (Georgia Power)
as a result of the Dec. 17, 2013 rate order by the Georgia Public Service
Commission (GPSC) regarding the company's base rate increase request. Even
though the rate order stipulates a lower base revenue increase compared with
Fitch's expectations, it provides for a three-year rate certainty and reflects
an authorized Return on Equity (ROE) of 10.95% that is above industry average.
Fitch has an Issuer Default Rating of 'A' for Georgia Power with a Stable
Rating Outlook.

The Georgia PSC unanimously voted to approve the three-year rate settlement
agreement that Georgia Power entered into with Georgia PSC's Public Interest
Advocacy Staff on Nov. 18, 2013, which was subsequently accepted by several of
the state's key intervenors. The rate order provides for $110 million base
rate increase effective Jan. 1, 2014 and incremental base revenue increases of
$186.8 million in 2015 and $169.8 million in 2016. This compares with Georgia
Power's request for a $482 million levelized rate increase based on a ROE of
11.5%. The authorized rate increases are based on a return on equity (ROE) of
10.95%. The ROE range of 10.00% - 12.00% provides for two-thirds of earnings
above 12.00% to be shared with customers. If earnings fall below 10.00%,
Georgia Power has the ability to file for an interim cost recovery tariff with
the PSC to adjust the utility's earnings back to 10.00% or file a full rate
case.

KEY RATING DRIVERS

Fitch's financial forecasts for Georgia Power are modestly lower as a result
of the rate case outcome. Fitch forecasts Georgia Power's adjusted debt to
EBITDA and FFO to adjusted debt to be approximately 3.5x and 20.5%,
respectively, in 2015. Overall, Fitch anticipates a gradual decline in Georgia
Power's credit metrics until 2015 reflecting the pressure from a large
construction program. Incorporated in Georgia Power's ratings is Fitch's
expectation that credit metrics will remain weak relative to peer groups due
to the peak in spending over the next two years.

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.

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. The 2013 rate order received today provides for
Environmental Compliance Cost Recovery (ECCR) tariff of $25.1 million in 2014,
$75.7 million in 2015 and $131 million in 2016.

RATING SENSITIVITIES

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
Nuclear Regulatory Commission, and outcomes of future Vogtle Construction
Monitoring reports filed by Georgia Power at the Georgia PSC. Cost overruns or
delays in the Vogtle project could pressure cash flow and ratings. 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 credit factors.

Unfavorable Regulatory Developments: Any adverse change in Georgia Power's
relations with the Georgia PSC, which is 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.

Additional information is available at www.fitchratings.com.

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. 19, 2013;
--'Rating North American Utilities, Power, Gas and Water Companies', May 16,
2011.

Applicable Criteria and Related Research:
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696670
Recovery Ratings and Notching Criteria for Utilities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085
Rating North American Utilities, Power, Gas, and Water Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129
Corporate Rating Methodology - Effective from 8 August 2012 - 5 August 2013
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552
Short-Term Ratings Criteria for Non-Financial Corporates
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714415

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Contact:

Fitch Ratings
Primary Analyst:
Shalini Mahajan, CFA, +1-212-908-0351
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Lindsay Minneman, +1-212-908-0592
Director
or
Committee Chairperson:
Glen Grabelsky, +1-212-908-0577
Managing Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
 
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