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Fate of Southern Co.'s Vogtle Rests Wholly on Oglethorpe

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In a recent development regarding Southern Company’s (SO - Free Report) controversial Vogtle Plant, Municipal Electric Authority of Georgia (MEAG), one of the important minority owners, has voted to proceed with the construction of the project.  

Georgia Power, a subsidiary of Southern Company, is the chief owner of the Vogtle project with 45.7% interest. Other co-owners include Oglethorpe Power, MEAG and Dalton Utilities, holding 30%, 22.7% and 1.6% interests each. Interestingly, as stated by Southern Company’s CEO, the project would need at least 90% of votes for its survival.

While three stakeholders namely Georgia Power, MEAG and Dalton Utilities have already given a go-ahead for Vogtle, the future of the plant now entirely rests on Oglethorpe. Even after the approval of the project by Georgia Public Service Commission (PSC) in December 2017, challenges surrounding the power plant do not seem to abate.

Vogtle Plant Clears Many Challenges, Fate Still Unclear

The Vogtle nuclear reactors have been grappling with cost overruns and scheduling delays since the commencement of the construction of the project. Moreover, bankruptcy filing by Westinghouse — a major construction contractor of the two nuclear reactors of the plant — further aggravated the costs and caused more delays. Since then, the future of the Vogtle project has been stuck in doldrums. The project is already running four years behind schedule, with a price tag of around $27 billion, almost double of what had been originally estimated.

In fact, a month back, Georgia Power revised the construction cost of the project, raising the price of the nuclear reactors by $2.3 billion. The ballooning costs thus triggered a clause in the agreement between the owners of the project, per which Vogtle plant needs to receive at least 90% of votes for its existence.

Last month, Southern Company had already announced its intent to absorb the project’s $1.1-billion share of cost increase. Moody’s Investors Service believes that Southern Company’s decision to continue with the project will increase its credit risk. The rating agency believes that the project, which has been missing milestone dates and suffering from poor productivity rates, is likely to suffer from more delays and ballooning costs. The decision will certainly hurt the financials of the company.

Just a day back, MEAG and Dalton Utilities have also supported the project to move forward, with their positive votes. In fact, a Jacksonville utility company requested MEAG to exit the project with some penalty as opposed to sticking on to it and increasing its credit risk prolife. However, despite pressure from Jacksonville, the Board of Directors of MEAG voted unanimously to forge forward with Vogtle plant. With the absorption of the rising costs, Dalton Utilities and MEAG may also face bond rating downgrades. Nonetheless, the companies believe that such nuclear energy projects are important in promoting economic growth, strengthening the energy and national security of the United States, along with providing long-term benefits to the firms.

Oglethorpe’s Vote Does Matter

The future of Vogtle Project still remains uncertain as Oglethorpe has requested for some more time to consider its vote. If Oglethorpe is willing to absorb the ballooning costs of the project, only then the project will likely survive.

Notably, Oglethorpe had also stated that if it accepts to absorb its share of cost increase, it would result in the exhaustion of its contingency fund. The dark cloud of uncertainty hovering over the Vogtle plant will only dissolve once Oglethorpe gives its final decision.

Notably, a down vote by Oglethorpe would result in scrapping of the project, causing a huge blow to the nuclear industry of America. Last year, South Carolina Electric & Gas — subsidiary of SCANA Corporation (SCG - Free Report) — terminated the construction of the $18-billion VC Summer nuclear project in South Carolina. Duke Energy Corporation (DUK - Free Report) also announced the abandonment of Lee III Nuclear Generating Station in South Carolina.

Zacks Rank and A Key Pick

Southern Company currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same industry is Atlantic Power Corporation (AT - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Atlantic Power’s 2018 earnings are expected to grow 211.11% year over year.

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