OREANDA-NEWS. Fitch Ratings has assigned an 'A+' rating to Georgia Power Company's (Georgia Power) issuances of $325 million series 2016A 3.250% senior notes due April 1, 2026 and $325 million series 2016B 2.400% senior notes due April 1, 2021. These notes are senior unsecured obligations of Georgia Power. The Rating Outlook is Stable.

The net proceeds from the 2016A offering will be allocated to Eligible Green Projects or Eligible Green Payments. The company defines Eligible Green Projects to include solar generation facilities or electric vehicle charging infrastructure. Eligible Green Payments include payments under Power Purchase Agreements served by solar power or wind power generation facilities.

The net proceeds from the 2016B offering will be used to redeem all or a portion of the $250 million series 2013B floating rate senior notes due March 15, 2016, repay all or a portion of the outstanding short-term indebtedness, and for general corporate purposes.

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 including recovery of the construction work in progress (CWIP) financing costs on the new Vogtle units.

KEY RATING DRIVERS

Resolution of Pending Litigation: Fitch views the October resolution of the pending litigation between Vogtle owners and the EPC contractors, changes in the EPC agreement, and the contractor changes as a positive development for Georgia Power. Favorable amendments to the original EPC agreement significantly limit the circumstances that the contractors could claim as material changes to the nuclear regulatory law, thereby, reducing the likelihood of future disputes. The modified EPC agreement also confirmed the in-service dates as June 30, 2019 for Unit 3 and June 30, 2020 for Unit 4. Now that Westinghouse has assumed the role of the primary contractor, Fitch's concerns regarding inter-creditor disputes have diminished.

Georgia Power has submitted the contractor settlement agreement to the PSC for its review. The PSC has asked Georgia Power to file supplemental information to support the reasonableness of the existing capital costs and schedule estimates and to demonstrate that all construction costs to date have been prudently incurred. Further, the PSC has directed the Staff to engage in settlement discussions with Georgia Power and other intervenors. A settlement with the Staff and/ or another outcome that provides more certainty regarding the recovery of costs currently not included in the existing $6.1 billion cost certification would be credit positive. This will greatly reduce the uncertainty created by the last PSC stipulation that deferred the re-certification of costs until the first nuclear unit commenced operation.

Deteriorating Credit Profile of Toshiba: Fitch is concerned with the weakening credit profile of Toshiba Corporation (not rated by Fitch), which is the majority owner of Westinghouse and has guaranteed certain Westinghouse obligations. Toshiba's credit rating has been lowered to below investment grade by the other two rating agencies. Per the terms of the EPC contract, Toshiba has posted approximately $900 million in letters of credit, which partly mitigates Fitch's concern.

High Project Execution Risk: The new Vogtle units are experiencing a significant delay in the construction schedule and the timeline has slipped 39 months from the originally proposed April 2016 and April 2017 completion dates. The construction delay is not causing any ratings pressure for Georgia Power at this time. The EPC contract is largely fixed and Fitch expects that any adjustments to the overall project costs will be deemed prudent and recoverable by the PSC. Georgia Power sees no change to its assessment of a 6%-8% impact on customer rates as a result of the construction delay and this should minimize the regulatory risk, in Fitch's opinion.

Constructive Regulation: 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. Georgia Power's rate case outcome in December 2013 provides for a three-year rate certainty and reflects an authorized return on equity (ROE) of 10.95% that is above industry average. The ability to recover the CWIP financing costs on the new Vogtle units has alleviated pressure on credit metrics. Fitch expects Georgia Power to file a general rate case in 2016 for new rates to be effective January 2017.

High Environment Capex: Georgia Power's annual capex is forecast to be in the $2.1 billion-$2.5 billion range over 2016-2018 and is primarily driven by Georgia Power's share of Vogtle costs. Georgia Power environmental capex is winding down, and the company anticipates spending approximately $700 million over 2016-2018, mostly for compliance with the Mercury and Air Toxics Standards (MATS) rule. While Georgia regulations do not allow for automatic recovery of environmental costs, Georgia Power has historically been granted adequate rate relief on its environmental capex.

Modest Weakening of Credit Metrics: Fitch anticipates a modest deterioration in Georgia Power's credit metrics until 2017, reflecting the pressure from a large construction program. Fitch forecasts Georgia Power's adjusted debt/EBITDAR and funds from operations (FFO)-adjusted leverage to be approximately 3.4x and 4.0x, respectively, in 2017. The financial forecasts assume a constructive outcome in Georgia Power's next rate case filing for new rates effective January 2017 that allows Georgia Power to earn an ROE close to the current authorized levels.

KEY RATING ASSUMPTIONS

--1.5% increase in electricity sales;
--Nuclear Construction Cost Recovery (NCCR) tariff increases of 0.5% - 1% over 2016 - 2017;
--Environmental Compliance Cost Recovery (ECCR) tariff increase of $75 million in 2016;
--Vogtle 3 & 4 in-service in 2019 and 2020.

RATING SENSITIVITIES

Positive: Positive rating actions for Georgia Power are not anticipated at this time.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--No further material cost and/or schedule escalation for Vogtle units and any adjustments to the overall project costs deemed recoverable by the Georgia PSC;
--Continued regulatory support in Georgia regarding the VCM filings and next general rate case to be filed mid 2016;
--FFO adjusted leverage weakens to 4.25x or higher on a sustained basis.