TEXT - Fitch rates Georgia Power Co senior notes 'A+'
Nov 15 - Fitch Ratings has assigned an 'A+' rating to Georgia Power Company's (Georgia Power) issuance of $400 million series 2012D 0.625% senior notes due Nov. 15, 2015. These notes are senior, unsecured obligations of Georgia Power. The Rating Outlook is Stable. The net proceeds from the offering will be used for the redemption of Georgia Power's $100 million series 2007F 6.05% senior monthly notes due Dec. 1, 2038 and for general corporate purposes, including the continuous construction program at the company. 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. Capital projects, in addition to Georgia Power's $6.2 billion share of Vogtle costs, include up to 2,500 megawatts (MWs) of gas-fired combined cycle capacity at Plant McDonough that will more than offset the retiring coal-fired capacity. The remaining coal-fired power plants will require ongoing spending for environmental compliance. Georgia Power's annual capital expenditures are forecasted to be in the $2 billion-$2.5 billion range over 2012-2014, or approximately three times depreciation, for the next few years. This is a high level relative to peer electric utilities. Approximately 36% of these expenditures are related to new generation projects and 13% related to environmental expenditures. 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 Georgia Power to embark on a heavy capital investment program with strong credit metrics. Georgia Power's funds from operations (FFO) interest coverage ratio was 7.3x for the LTM ended June 30, 2012, and FFO to adjusted debt was 24.5%. Fitch anticipates a gradual decline in Georgia Power's financial ratios until 2014 under the current three-year rate settlement. The sales growth at Georgia Power has slowed through the first nine months of 2012 due to the rising uncertainty around economic growth. Persistently weak sales could put additional pressure on credit metrics through 2014. Fitch expects Georgia Power's coverage metrics to remain strong relative to its rating category until 2014; however, the leverage ratios are expected to be modestly weaker reflecting the pressure from a large capital intensive construction program. Fitch forecasts Georgia Power's adjusted debt to EBITDA and FFO to adjusted debt to be approximately 3.3x and 21.5%, respectively, in 2014. What Could Trigger a Rating Action Project Execution: Successful execution of nuclear plant construction and continued regulatory support is 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, potential escalation of the project costs, and outcome of the periodic monitoring reports filed by Georgia Power at the Georgia Power Public Commission (GPSC). Cost overruns or delays in the Vogtle project could pressure cash flow and ratings. Rate Case Outcome: Georgia Power is required to file a rate case by the middle of 2013 for rates to be effective January 2014. Any adverse outcome in future rate proceedings or any adverse change in Georgia Power's relations with the GPSC, which are currently not anticipated, would also likely lead to negative rating action. Positive Rating Actions Unlikely: Positive rating actions for Georgia Power are considered unlikely while the Vogtle project is underway.