Rate hikes boost power company profits…and another 6 percent’s coming

Gulf-PowerBy Deborah Nelson

Panhandle electricity customers may be using less energy but they’re paying more…boosting power company profits through the 3d Quarter of 2014.

Gulf Power raised base rates $4.06 per 1,000 kilowatt hours in 2014.  Rates go up another $7.29 per 1,000 kWh again in January.  That will jack rates 6 percent from Gulf Power’s current $132 per 1,000 kWh, to $139.29, per Florida’s Public Service Commission.  The new rate includes another $2.42 base increase plus a fuels cost hike, according to an October 22 PSC release.

Rate hikes helped increase Gulf Power parent company Southern Company’s 2014 net income by 36.6 percent as ofSeptember 30: from $1.23 billion at the same time last year to $1.68 billion, according to their 3d Quarter SEC filing.

Those numbers encompass all of Southern Company’s subsidiary power companies, including Gulf Power.

Southern Company’s 2014 retail revenues rose 8.4 percent, from $11.2 to $12.2 billion as of September 30.

Rate hikes accounted for 7 times more of that growth than increased usage.

In fact, says Southern Company, customer usage declined this year.

“Weather-adjusted residential KWH sales remained relatively flat in the third quarter and for year-to-date 2014 as a result of customer growth offset by decreased customer usage,” the report notes.

Customer growth improved revenues by 3 tenths of one percent.

That’s compared to 2.1 percent growth in revenues the company attributes to rate increases – the same amount weather contributed.

Southern Company’s 3d Quarter report briefly touches on the bad economy.

“Household income, one of the primary drivers of residential customer usage, has been flat in 2014,” it observes.

Power company income, on the other hand, appears to be expanding comfortably for Southern Company as well as its subsidiaries.

In the past 9 months, Gulf Power’s net income increased 18 percent:  from $99 million at the same time last year to $117 million as of September 30.

Rate hikes were a key part of expanding profits, according to the 10Q report.

“…Also contributing to [rate hike-related] increases were increased revenues at Alabama Power associated with Rate CNP Environmental primarily resulting from the inclusion of pre-2005 environmental assets and increased revenues at Gulf Power primarily resulting from the retail base rate increase effective January 2014, as approved by the Florida PSC [emphasis added].”

As of September 30, Gulf Power retail revenues increased 8.7 percent over the same time last year:  $979.4 million compared to $901.3 million.  Rate hikes accounted for 4 times more of those new revenues than sales growth:  3.7 percent versus .9 percent.  Weather accounted for 1.1 percent.  The last 3 percent came from fuels cost and other recovery.

Southern Company’s stock price has increased this year as well.  It climbed from $40.69 on January 2 to $47.29 on December 5, according to Reuters.com.

Company executives receive stock as part of their pay.  Gulf Power executives are required to buy company stock, as detailed in the following excerpt from Southern Company’s 2013 10K Annual Report:

“EXECUTIVE STOCK OWNERSHIP REQUIREMENTS

Officers of Gulf Power that are in a position of Vice President or above are subject to stock ownership requirements. All of the named executive officers are covered by the requirements. Ownership requirements further align the interest of officers and Southern Company’s stockholders by promoting a long-term focus and long-term share ownership. The types of ownership arrangements counted toward the requirements are shares owned outright, those held in Southern Company-sponsored plans, and Common Stock accounts in the Deferred Compensation Plan and the Supplemental Benefit Plan. One-third of vested stock options may be counted, but, if so, the ownership requirement is doubled. The ownership requirement is reduced by one-half at age 60.

The requirements are expressed as a multiple of base salary as shown below.

Multiple of Salary withoutCounting Stock Options Multiple of Salary Counting1/3 of Vested Options
  1. W. Connally, Jr.
3 Times 6 Times
  1. S. Teel
2 Times 4 Times
  1. L. Burroughs
1 Times 2 Times
  1. B. Jacob
2 Times 4 Times
  1. C. Terry
2 Times 4 Times

 

Newly-elected officers have approximately five years from the date of their election to meet the applicable ownership requirement. Newly-promoted officers, including Mr. Connally, have approximately five years from the date of their promotion to meet the increased ownership requirements. All of the named executive officers are meeting their respective ownership requirement.”

 

 

********Gulf Power top management salaries from last year’s 10K Annual Report:********

 

 

“Performance

 

Performance-based pay represents a substantial portion of the total direct compensation paid or granted to the named executive officers for 2013.

 

 

Salary ($)(1)

% of Total Short-Term Performance Pay ($)(1) % of Total Long-Term Performance Pay ($)(1) % of Total
  1. W. Connally, Jr.
372,977 36 164,557 16 488,381 48
  1. S. Teel
244,903 52 80,895 17 147,715 31
  1. L. Burroughs
193,498 59 59,127 18 77,774 23
  1. B. Jacob
258,605 52 85,236 17 155,665 31
  1. C. Terry
262,809 52 86,809 17 158,513 31

 

(1) Salary is the actual amount paid in 2013, Short-Term Performance Pay is the actual amount earned in 2013 based on performance, and Long-Term Performance Pay is the value on the grant date of stock options and performance shares granted in 2013. See the Summary Compensation Table for the amounts of all elements of reportable compensation described in this CD&A.

 

Gulf Power financial and operational and Southern Company earnings per share (EPS) goal results for 2013 are shown below:

 

Financial: 43% of Target Operational: 177% of Target EPS: 0% of Target

 

Southern Company’s annualized total shareholder return has been:

1-Year: 0.49 % 3-Year: 7.22% 5-year: 7.22%

 

These levels of achievement resulted in payouts that were aligned with Gulf Power and Southern Company performance.”

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