Southern Company Vogtle Project Requires More Loan Guarantee

Electric utility firm The Southern Company (NYSE:SO) , together with other co-owners of the Vogtle Project, recently requested for additional federal loan guarantees, extending the $8.3 million loan guarantees already issued for the project. Georgia Power, subsidiary of Southern Company, is the chief owner of the project with a 45.7% interest. The other co-owners include Oglethorpe Power, MEAG Power and Dalton Utilities.

Oglethorpe Power Corporation — second-largest stakeholder of the Vogtle project with a 30% interest — recently sought additional loan guarantee of $1.6 billion from the Department of Energy (DOE) to complete the construction of two nuclear reactors at its Vogtle power plant. The company already has a $3 billion loan guarantee from DOE out of which it has drawn $1.7 billion till now. The owners of the project have already been granted an $8.3 billion loan guarantees by the DOE comprising a loan guarantee of $6.5 billion to Georgia Power and Oglethorpe Power in 2014 and an additional support of $1.8 billion in 2015.

Westinghouse was the major construction contractor and designer of the two nuclear reactors at Vogtle power plant. However, Westinghouse had filed for bankruptcy in March, raising concerns over the nuclear industry. Nevertheless, in June, Westinghouse’s parent company Toshiba Corporation had agreed to provide a financial assistance of $3.68 billion for the development of two nuclear reactors. The Vogtle nuclear reactors have been grappling with cost overruns and scheduling delays since the commencement of construction. The project is already running three years behind schedule and is over budget by more than $10 billion.

A cloud of uncertainty is hovering over the beleaguered plant. Georgia Power has been assessing the various feasible alternatives including the completion of one or both the reactors, termination of the project or switching to a different power source.

As of now, Vogtle plant in Georgia is the only project which is under construction in the United States. Last month, South Carolina Electric & Gas — subsidiary of SCANA Corporation (NYSE:SCG) — terminated the construction of $18 billion VC Summer nuclear project in South Carolina. On Aug 25, Duke Energy Corporation (NYSE:DUK) announced the abandonment of Lee III Nuclear Generating Station in South Carolina.

The company had been given a deadline of Aug 31 by the Georgia Public Service Commission to complete the full-scale schedule and cost-to-complete analysis of the Vogtle project. Thus, Georgia Power is likely to file the 17th Vogtle Construction Monitoring report tomorrow where it will take its final official call regarding the completion of the project.

Zacks Rank and Key Pick

Southern Company is one of the largest and best-managed electric utility holding companies in the United States. The firm dominates the power business across the southeastern region. Southern Company has lost 2.5% of its value year to date against 9.3% growth of its Zacks Investment Research

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Written By: Zacks Investment Research