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Fresh Controversy Hits Southern Company's Vogtle: What Next?

Zacks Equity Research

Georgia’s regulatory staff has raised questions regarding The Southern Company’s SO Vogtle Project.They are of the opinion that the project is getting overtly expensive and should be called off unless Southern Company and Georgia Power bear part of the ballooning cost. Georgia Power is of the belief that customers should bear the additional cost of the project. This is in sharp contrast with the views of the regulatory staff who believe that such inflated cost would be a burden on customers. They believe that once the project is completed ratepayers are likely to bear higher costs with reduced benefits and hence want to pull the plug on the project.

If the project gets scrapped, it will be a huge blow to the nuclear industry of America. In August, South Carolina Electric & Gas — subsidiary of SCANA Corporation SCG — terminated the construction of $18-billion VC Summer nuclear project in South Carolina. Duke Energy Corporation DUK also announced the abandonment of Lee III Nuclear Generating Station in South Carolina.

The Vogtle nuclear reactors have been grappling with cost overruns and scheduling delays since the commencement of the construction. The bankruptcy of Westinghouse — the major construction contractor of the two nuclear reactors of the plant — aggravated the costs further and led to more delays. Since then a cloud of uncertainty has been hovering over the beleaguered plant. The project is already running three years behind schedule and is over budget by more than $10 billion and is likely to go up to $20 billion by 2022.

Georgia Power filed a recommendation with the Public Service Commission (PSC) on Aug 31 to pursue the construction of two nuclear reactors at Vogtle units 3 and 4.  The PSC is soon to complete the review process and take a final call regarding the expansion of the Vogtle project in February 2018.

Moody’s Investors Service, believes that the company’s decision to continue with the project will increase the 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, which is likely to hurt the financials of the company, may also affect its negotiations over the acquisition of South Carolina's state-owned electric utility, Santee Cooper.

Southern Company is one of the largest generators of electricity in the nation. The company currently carries a Zacks Rank #3 (Hold).  

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A better-ranked player in the same industry is Atlantic Power Corporation AT, carrying a Zacks Rank#2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Atlantic Power delivered an average positive earnings surprise of 8.81% in the trailing four quarters.

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