SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER 2017 vs. THIRD QUARTER 2016
YEAR-TO-DATE 2017 vs. YEAR-TO-DATE 2016
Southern Power constructs, acquires, owns, and manages power generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. Southern Power continually seeks opportunities to execute its strategy to create value through various transactions including acquisitions and sales of assets, construction and development of new generating facilities, and entry into PPAs primarily with investor-owned utilities, independent power producers, municipalities, and other load-serving entities, as well as commercial and industrial customers. In general, Southern Power has constructed or acquired new generating capacity only after entering into or assuming long-term PPAs for the new facilities.
During the nine months ended September 30, 2017, Southern Power acquired or completed the construction of, and placed in service, approximately 498 MWs of solar and wind facilities. In addition, Southern Power began construction at the recently acquired Cactus Flats wind facility, continued development of its portfolio of wind projects, and continued expansion of the Mankato natural gas facility by 345 MWs of capacity. See FUTURE EARNINGS POTENTIAL – "Acquisitions" and "Construction Projects" herein for additional information.
Southern Power is considering the sale of up to a one-third equity interest in its solar asset portfolio. The ultimate outcome of this matter cannot be determined at this time.
At September 30, 2017, Southern Power had an average investment coverage ratio of 91% through 2021 and 90% through 2026, with an average remaining contract duration of approximately 16 years. These ratios include the PPAs and capacity associated with facilities currently under construction and acquisitions discussed herein. See FUTURE EARNINGS POTENTIAL – "Power Sales Agreements" herein for additional information.
Southern Power continues to focus on several key performance indicators, including, but not limited to, peak season equivalent forced outage rate, contract availability, and net income.
RESULTS OF OPERATIONS
Third Quarter 2017 vs. Third Quarter 2016
Year-to-Date 2017 vs. Year-to-Date 2016
(change in millions)
(change in millions)
Net income attributable to Southern Power for the third quarter 2017 was $124 million compared to $176 million for the corresponding period in 2016. The decrease was primarily due to decreased income tax benefits from solar ITCs and increased interest expense primarily due to a decrease in capitalized interest associated with completing construction of and placing in service solar facilities, partially offset by additional operating income related to new generating facilities.
Net income attributable to Southern Power for year-to-date 2017 was $276 million compared to $315 million for the corresponding period in 2016. The decrease was primarily due to decreased income tax benefits resulting from a reduction in solar ITCs, partially offset by an increase in wind PTCs, and increased interest expense from debt issuances to fund Southern Power's growth strategy and continuous construction program, partially offset by additional operating income from new generating facilities.
For additional information on new generating facilities placed in service during 2016 and 2017, see MANAGEMENT'S DISCUSSION AND ANALYSIS – FUTURE EARNINGS POTENTIAL – "Acquisitions" and