Southern Co.'s Profit Declines 3% on Tax Liability

By Jim Polson

July 30 (Bloomberg) -- Southern Co., the largest U.S. electricity producer, said second-quarter profit fell 3 percent on costs related to court rulings on tax liabilities for overseas projects.

Net income dropped to $416.4 million, or 54 cents a share, from $429.2 million, or 56 cents, a year earlier, Atlanta-based Southern said today in a statement. Excluding the tax costs and another one-time item, the results beat by 6 cents the average of 11 analyst estimates compiled by Bloomberg.

Sales jumped 12 percent to $4.22 billion as more people moved into its utility territories and electricity rates rose. Southern supplies power to 4.4 million homes and businesses in Georgia, Alabama, Mississippi and Florida and sells electricity under long-term contracts to other utilities in the Southeast.

``Their retail utility business benefited strongly from higher rates that resulted from increased investment in power lines and environmental controls,'' said Nathan Judge, an analyst at Atlantic Equities in London who rates Southern shares ``overweight'' and owns none.

Southern rose 22 cents to $35.95 at 9:54 a.m. in New York Stock Exchange composite trading. The stock, which has 7 buy recommendations from analysts and 11 holds, has fallen 7.2 percent this year, compared with the 11 percent decline in the 20-company Philadelphia Stock Exchange Utility Index.

Beats Estimates

The results included costs of $67 million related to taxes that may be owed on so-called sale-in, lease-out arrangements at foreign projects as a result of rulings against other companies. The costs were reported by Southern on June 26.

Excluding the tax costs and a loss on investment in synthetic fuel production, a business Southern exited, profit was 63 cents a share. On that basis, the analysts whose estimates were compiled by Bloomberg expected profit of 57 cents.

Higher revenue at its utilities added 17 cents to second- quarter profit, Southern said. The company's largest utility, Georgia Power, won a $321.7 million rate increase, effective Jan. 1, to pay for system improvements and emissions cuts from coal-fueled plants.

Higher rates and the addition of 40,000 utility accounts companywide outweighed a 1.2 percent decline in retail power deliveries as cooler weather reduced demand for electricity to run air conditioners, Southern said.

Industrial Sales

``Market-based rates to some of our industrial customers have begun to produce significant revenues,'' Chief Executive Officer David Ratcliffe, 59, said in an interview. ``As prices go up in the fuel part of our business, those rates go up pretty significantly.''

Southern is the second-largest U.S. consumer of coal behind American Electric Power Co. Its plants can produce 42,000 megawatts, enough to supply 33.6 million average U.S. homes, based on an estimate by the Energy Department in Washington.

The price of eastern U.S. coal more than doubled during the quarter to $103.23 a ton. Western coal, also burned in Southern's plants, rose 63 percent, to $63 a ton.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net.