Southern Company To Take Managerial Charges Of Vogtle Project

Per the new terms of the agreement signed in early June, electric utility firm The Southern Company (NYSE:SO) will take over management charges at the Vogtle Plant in Georgia starting late July. The plant was previously managed by Japan’s Toshiba Corp’s subsidiary, Westinghouse Electric Co.

Recent Update

Per the service agreement, Southern Company’s largest subsidiary, Georgia Power, as well its other unit, Southern Nuclear, will continue with the construction work of two nuclear reactors at its Vogtle power plant.

The agreement will become operative with the receipt of all necessary approvals. The agreement has been approved by the Department of Energy and is awaiting the approval of the bankruptcy court. The interim deal has been extended till Jul 20 to incorporate the latest agreement.

Toshiba has promised a financial assistance of $3.68 billion under the agreement for the development of two nuclear reactors at its $20 billion Vogtle plant. The company is expected to make the first payment of $300 million in October.

The scope of the deal covers engineering, procurement and licensing support from Westinghouse. The deal will also provide access to Toshiba’s subsidiary Westinghouse’s intellectual property needed for the project.

Challenges Galore

The Vogtle nuclear reactors have been grappling with cost overruns and scheduling delays since the commencement of construction. The project expansion is at least $3 billion over budget and three years behind schedule. Further, Westinghouse’s bankruptcy proceedings are likely to further aggravate the costs and lead to even more delays.

Westinghouse was the major construction contractor and designer of the two nuclear reactors at Vogtle power plant. However, Westinghouse had filed for bankruptcy in late March, casting a shadow over the nuclear industry. This was because the company’s corporate parent, Toshiba, suffered huge losses owing to Westinghouse’s projects in Georgia and South California. Therefore, Westinghouse exited the Vogtle project as part of the bankruptcy proceedings. Since then, a cloud of uncertainty has hovered over the beleaguered plant.

However, the recent service agreement has helped the project gain some momentum, with Southern Company expected to complete the full-scale schedule and cost-to-complete analysis of the project in August with the other co-owners namely, Oglethorpe Power, MEAG Power and Dalton Utilities.

Zacks Rank & Key Picks

Southern Company is one of the largest and best-managed electric utility holding companies in the U.S. The firm dominates the power business across the southeastern region. The utility, under Zacks categorized Utility- Electric Power industry, currently carries a Zacks Rank #4 (Sell). In the past 12 months, Southern Company’s shares have declined 12%, underperforming the broader industry which witnessed a decline of 3.5%.

Some better-ranked stocks in the utility electric sector include Calpine Corporation (NYSE:CPN) , Pattern Energy Group Inc. (NASDAQ:PEGI) and Algonquin Power & Utilities Corp. (TO:AQN) . While Calpine and Pattern Energy sport a Zacks Rank #1 (Strong Buy), Algonquin carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Calpine’s sales for the second quarter of 2017 are expected to increase 3.2% year over year. The company’s earnings for this period are expected to grow 16.7% year over year.

Pattern Energy’s 2017 sales are expected to increase 35.3% year over year. The company has delivered an average positive earnings surprise of 77.3% in the trailing four quarters.

Algonquin’s sales for the second quarter of 2017 are expected to increase 133.2% year over year. The company posted a positive earnings surprise of 55.9% in the first quarter of 2017.

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