Cash-Starved Southern Sells Florida Assets to NextEra

NextEra Energy on May 21 said it would acquire several assets from Southern Co., including Southern’s ownership interest in two natural gas-fired power plants in Florida, in a deal valued at about $6.5 billion.

Southern in a statement Monday said the sale would help the company reduce debt, which has dogged Southern as its subsidiary Georgia Power continues construction of Units 3 and 4 at the Vogtle nuclear plant in Georgia. The expansion at Vogtle is years behind schedule and billions of dollars over budget.

Southern CEO Tom Fanning earlier this month told company investors that the utility needed to raise cash to reduce debt, pay for the new Vogtle reactors, and boost the company’s returns. Southern’s share price on average is down more than 10% in 2018. The company laid out the details of the sale and presented a plan for its use of the equity proceeds over the next five years in a conference call Monday morning. Southern in a statement Monday said, “Proceeds from these transactions are intended to be used to reduce debt and improve Southern Company’s balance sheet.”

NextEra Acquires Two Gas Plants

NextEra is acquiring Southern’s 100% ownership interest in Plant Oleander, a 791-MW gas-fired simple-cycle combustion turbine power plant near Cocoa, Florida, on the state’s East Coast. The plant came online in 2002; Southern purchased it from Constellation Energy in 2005.

The deal also includes a 65% ownership interest in Stanton Energy Center, a gas-fired combined cycle plant near Orlando, Florida, which came online in 2003. The interest is contracted with the Orlando Utilities Commission and Florida Municipal Power Agency. Both the Oleander and Stanton facilities have dual-fuel capability, with distillate (fuel oil) as a backup fuel.

NextEra also is acquiring Gulf Power, a Pensacola, Florida-based utility that serves Northwest Florida, and Florida City Gas, which provides natural gas to residential and commercial customers in four counties along the state’s East Coast.

Fanning in a statement Monday said, “This sale provides Southern Company the opportunity to deliver great value to our organization, bolster our financial profile and continue to build the future of energy as one of America’s premier energy companies. These Florida businesses are being sold at a price that provides substantial value to our stockholders, while entrusting the customers of these exceptional franchises to a high-quality utility company that has a well-established presence in the state.”

NextEra Ups Earnings Targets

NextEra in a news release Monday said it expects the deal will immediately add to its earnings.

“We are pleased to have reached definitive agreements with Southern Company to acquire Gulf Power and Florida City Gas, along with Southern Company’s Oleander and Stanton facilities,” said Jim Robo, chairman and chief executive officer of NextEra Energy. “These transactions will provide meaningful benefits for the state of Florida, and Gulf Power and Florida City Gas customers, as well as NextEra Energy shareholders. Following the financing of the transactions and as a result of expanding our regulated operations, we expect to continue to maintain $5 billion to $7 billion of excess balance sheet capacity with which to further support our long-term growth. We are raising our 2020 and 2021 adjusted earnings per share expectations by $0.15 and $0.20, respectively, upon closing and will be disappointed if we are not able to deliver financial results at or near the top end of these revised ranges.”

NextEra, headquartered in Juno Beach, Florida, has said it has more than $40 billion in new infrastructure investments planned through 2020. NextEra is the parent company of Florida Power & Light, Florida’s largest utility. The company said it plans to finance the deal by issuing new debt.

An aerial of the Kemper Co. energy facility taken in July 2014. Courtesy: Mississippi Power

1. A failed project. The Kemper facility in Mississippi today operates as a natural gas-fired power plant after a failed coal gasification project. Courtesy: Mississippi Power

The Vogtle nuclear expansion is not the only project that has weighed on Southern’s finances. The company took a $6 billion hit in pretax charges after it scrapped plans last year for a coal gasification project at the Kemper plant (Figure 1) in Mississippi. Analysts say the company’s cash flow also has been hurt by the U.S. tax overhaul, and it needs capital to pay for growth at its regulated utilities.

The company’s shareholders are expected to hold an advisory vote at Southern’s annual meeting May 23 on a proposal to reduce Fanning’s annual pay from $15.8 million to $15.7 million. The company in a proxy statement issued in advance of the shareholders meeting praised Fanning and company executives for keeping the Vogtle project moving forward but said there was concern about the losses from the failed Kemper project.

The proxy statement read: “It is our responsibility to balance the significant successes against the ultimate actions taken during 2017, in particular the charges to earnings for the Kemper [plant], to ensure that pay is aligned with financial performance and stockholder interests.”

Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).