U.S. Markets closed

Southern to Expend More for Vogtle

Zacks Equity Research

Southern Company (SO) expects its construction budget to jump for its nuclear plant in eastern Georgia. However, this budget hike awaits regulatory approval and the utility aims to ask Georgia's Public Service Commission for a formal budget increase going forward.

One of the largest and best-managed electric utility holding companies in the US, Southern Company revealed that its $6.1 billion construction budget will increase by $87 million. This budget is mainly allocated for the construction of the first-of-its-kind nuclear plant in eastern Georgia.

Vogtle Electric Generating Plant (or Plant Vogtle) — located near Waynesboro in Burke County, Georgia − is jointly owned by Georgia Power, Oglethorpe Power Corporation, Municipal Electric Authority of Georgia and Dalton Utilities with 45.7%, 30%, 22.7% and 1.6% stakes, respectively. Another affiliate of Southern Company, Southern Nuclear, is regulating the construction and will operate the two units for Georgia Power and its associate partners. This plant received the first construction approval following years of struggle to build nuclear plants within a reasonable budget.

Southern Company expects to invest approximately $14.0 billion over the three-year period of 2012 – 2014, for the construction of two new AP1000 reactors at the company’s existing nuclear site in Vogtle, Georgia. However, the company stated that the construction of the reactors will get delayed by seven months. Georgia Power − the largest subsidiary of Southern Company − highlighted that the first reactor will initiate generating power by November 2016.

Headquartered in Atlanta, Georgia, Southern Company is the second largest generator of electricity in the nation behind Exelon Corp. (EXC), serving both regulated and competitive markets across the Southeastern US. We consider the Southeast to be one of the better regions to operate an electric utility due to the higher-than-average natural population growth, the strong and diverse regional economy, constructive regulation and comparatively tight power markets. These characteristics provide a solid basis for Southern Company’s regulated business, which is expected to comprise roughly 90% of its consolidated earnings over the next few years.

Although we believe that the cost overruns from this project should be recovered through rate base increases, the increasing risk and complexity in constructing and running nuclear plants keep us cautious.

Hence, we see the stock performing in line with the broader market and maintain our long-term Neutral recommendation. The company also retains a Zacks #3 Rank (short-term Hold rating).

Read the Full Research Report on EXC

Read the Full Research Report on SO

Zacks Investment Research

More From Zacks.com