EUR 850.00 For Business Accounts Only

Morningstar | Southern's Vogtle Nuclear Plant on Schedule

Southern Co. is undergoing one of the most dramatic transformations in the usually stodgy world of regulated utilities. In 2000, almost 80% of electricity sold to customers was generated using coal. By 2030, we estimate it will be less than 20% and the company recently announced a goal of low- and no-carbon generation by 2050 that will probably require the closure of the remaining coal plants. Nuclear, natural gas, and renewable energy are all increasing their share of generation. However, the transformation has certainly had hiccups.In 2017, wholly owned Georgia Power took over construction of the Vogtle nuclear plant after Toshiba's Westinghouse Electric, which was building the two new units, declared bankruptcy. Vogtle's total capital cost is now estimated to be over $20 billion, with Georgia Power's share approximately $8.5 billion net of a $1.7 billion settlement payment from Toshiba. Although the plant is five years behind schedule and more than double the initial cost estimate, we believe the project will meet the revised schedule and the first reactor should begin operation by November 2021.Another problem associated with Southern's transformation is the delays and cost overruns at the Kemper (Mississippi) project, an integrated gasification combined-cycle power plant that was to convert lignite coal to syngas and the first plant at commercial scale to use carbon capture. The plant was three years behind schedule and over double its initial cost estimate when wholly owned Mississippi Power abandoned the lignite-to-gas conversion.The Kemper plant is now running using natural gas. In early 2018, a settlement was reached in which Mississippi Power can charge customers for the generation side of the facility, but abandoning the lignite-to-gas operation required a write-off of roughly $6 billion pretax.Although these problems have been an embarrassment to one of the best management teams in the industry, we don’t believe the financial impacts will derail our estimated long-term annual EPS growth rate of 5% or put the company’s growing dividend at risk.