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Southern Company's Vogtle Project Survives Against All Odds

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The clouds of uncertainty looming over Southern Company’s (SO - Free Report) controversial Vogtle Plant has finally given way to sunshine. After prolonged delays and days of negotiation, all the four owners of the project have finally voted to proceed with the construction of the project. This marks a huge step toward strengthening America’s nuclear energy security.

Notably, 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, Municipal Electric Authority of Georgia (MEAG) and Dalton Utilities holding 30%, 22.7% and 1.6% interests, respectively.

Vogtle Clears the Hurdles

The Vogtle nuclear reactors have been grappling with cost overruns and scheduling delays since the commencement of its construction. Moreover, bankruptcy filing by Westinghouse — a major construction contractor of the two nuclear reactors of the plant — aggravated the costs further and caused more delays. Since then, the future of the Vogtle project has been in a limbo. 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. Consequently, the ballooning costs triggered a clause in the agreement between the owners of the project, per which Vogtle plant needed to receive at least 90% of votes for its existence.

Last month, Southern Company, whose peers include Atlantic Power Corporation (AT - Free Report) and Ameren Corporation among others, had already announced its intention 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 may hurt the financials of the Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank stocks (Strong Buy) here.

Just few days back, MEAG and Dalton Utilities also lent support to the project, with their positive votes. In fact, a Jacksonville utility company requested MEAG to exit the project with some penalty as opposed to sticking with it and increasing its credit risk prolife. However, despite pressure from Jacksonville, the Board of Directors of MEAG voted unanimously to forge ahead with Vogtle plant. With the absorption of the rising costs, Dalton Utilities and MEAG may also face bond rating downgrades.

However, the fate of the plant still remained uncertain with Oglethorpe reluctant to vote in favor of the plant owing to its ballooning costs. 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. In fact, Oglethorpe had stated that it would only give its go-ahead if the project costs were capped. Consequently, Oglethorpe’s vote was the decisive one and the company requested for time to take a call.

Notably, a down vote by Oglethorpe would have resulted in scrapping of the project, causing a huge blow to the nuclear industry of America. However, finally after certain agreement terms and negotiations, Oglethorpe finally green lit the nuclear power project. It is believed that Georgia Power has agreed to have taken certain actions which will help reduce the financial exposure for the other co-owners of the project.

The Only Nuclear Project in the Nation Finally Survives

With the decision to continue with the project, Vogtle plant in Georgia will be the only nuclear project which is under construction in the United States. Last year, South Carolina Electric & Gas — subsidiary of SCANA Corporation (SCG - Free Report) — terminated the construction of $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.

The Vogtle plant will make the United States nuclear competitive, helping the nation catch up with the likes of Russia and China. Many nuclear proponents have also supported the company’s commitment toward nuclear power with zero emissions, finding it more reliable than solar and wind energy. The U.S. Secretary of Energy believes that such nuclear energy projects are important in promoting economic growth by the creation of thousands of jobs along with strengthening the country’s energy and national security.

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