Mississippi Power Co. - a unit of Atlanta-based electric utility
) - recently announced that it will sell 15% of its Kemper County
power plant to South Mississippi Electric Power Association (SMEPA)
for $500 million. The agreed upon sale of the $2.8 billion
under-construction facility is expected to be over by this
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Earlier this month, Hattiesburg-based SMEPA agreed to purchase the
LSP Energy power plant in Batesville for $286 million. The energy
power plant has a capacity of 837 megawatts, implying that SMEPA
will be paying $342,000 per megawatt of the generating capacity. On
the other hand, SMEPA - the generator and transmitter of power to
11 electric cooperatives spread over southern and western
Mississippi - will pay $5.65 million per megawatt for the Kemper
plant, representing a capacity of 88.5 megawatts.
These two investments will add more than 900 megawatts of capacity
and will meet SMEPA's long-term needs.
The 582 megawatt Kemper plant will be using lignite to ensure
stable fuel supply. To reduce fuel cost, lignite will be mined
onsite. The byproducts generated in the whole process will be sold
to other industries for economic and environmental benefits.
Southern Company - one of the largest generators of electricity in
the nation along with the likes of
Duke Energy Corporation
) - serves both regulated and competitive markets across the
Southeastern U.S. It is a holding company for four regulated
Southern electric utilities that serve about 4.4 million customers
- Georgia Power, Alabama Power, Gulf Power and Mississippi Power.
With a good rate base growth and constructive regulation, we expect
the firm to generate steady earnings and dividend growth in the
coming years through its long-term power contracts.
However, Southern Company's heavy reliance on coal-generated energy
supply and a lack of meaningful contribution from renewable energy
is a matter of concern. In the current age of growing emphasis on
'environment friendly or green' energy, the company may be forced
to divert cash flows to ensure regulatory compliance, which can
adversely impact profitability.
Consequently, we do not anticipate a significant upside in the near
future and expect the stock to perform in line with the broader
market. Southern Company has a Zacks #3 Rank (Hold rating) for the
short term. We are Neutral on the shares for the longer term.