Allen Franklin, CEO of Southern Co., said the company would focus on its regulated retail businesses in the Southeast to become a “super-regional” energy company.
The large utility holding company will go back to its roots of regulated utilities but with a twist. Southern retained some of the unregulated wholesale generation business from its spinoff of merchant generator Mirant Corp. Franklin addressed shareholders at the company’s annual meeting today in Savannah, Ga.
Southern still owns the unregulated generation business in the Southeast. “This is a very large and rapidly growing business. Last year alone, that business produced $100 million in net income for Southern Co. We expect that amount to double to $200 million per year by 2004.”
Southern will sell the services of its competitive generation businesses in regions of the Southeast but outside of its own regulated network.
The company completed its spinoff of all the rest of its unregulated businesses to form Mirant Corp., last month. Southern company shareholders own 80% of Mirant’s shares. The rest was spun off to the public.
The spin off was a good deal, Franklin explained.
Before the birth of Mirant, the market capitalization of Southern including Mirant’s assets was about $14 billion. Today, the market cap of Southern without Mirant is more than $15 billion. The value of the 80% of Mirant that Southern shareholders own is worth another $12 billion.
The total value creation from doing the spin off was about $13 billion in less than a year, Franklin said. He told shareholders to expect annual growth per share at 5% and the annual dividend of $1.34/share would be maintained and might even go higher consistent with earnings expectations.
Franklin reminded shareholders that the strength of Southern comes from its reputation and brand strength of the utility business.
“That’s still 90% of our net income. That business is the origin of our other strengths. That’s where our financial strengths come from — our reputation and our brand strength all come from our retail business,” said Franklin.
The Southeast where Southern’s vertically integrated utilities, including Alabama Power Co., Georgia Power Co., Mississippi Power Co., Savannah Electric & Power Co., and Gulf Power Co., operate has made little headway towards deregulation of the electricity industry.
In these states, electric rates are right at or below the national average. There hasn’t been much of a move to deregulate the electric industry there so far.
According to the Energy Information Administration, electric rates on average for the year 2000 for Georgia were 6¢/kw-hr; in Alabama 5.9¢/kw-hr;and 6.1¢/kw-hr for Mississippi.
With its emphasis on the regulated utilities, it’s not surprising that Southern has yet to file an acceptable regional transmission organization plan with Federal Energy Regulatory Commission as required. FERC is overseeing organization changes to the nation’s grid system to accommodate a more competitive wholesale market.
Southern is still revising its plan that was rejected by FERC during the first go round.