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Analysts see Southern pursuing Vogtle completion or deferring to regulators


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Analysts see Southern pursuing Vogtle completion or deferring to regulators

Several analysts believe Southern Co. will continue to pursue completion of its nuclear expansion project at the Alvin W. Vogtle Plant, while others are unsure but outlined both "go" and "no-go" scenarios.

Georgia Power Co., a Southern subsidiary and Vogtle's majority owner, is expected to present its recommendation to state regulators by August's end on whether the utility should complete or abandon two new reactors at the facility.

"Management's commentary all but seemed to indicate the preferred path will be to complete the units," Wells Fargo Securities analyst Neil Kalton said in an Aug. 2 note. CreditSights analyst Greg Jones agreed, writing in an Aug. 2 note that "management's current rhetoric seems consistent with [Southern] making a 'Go' recommendation."

Southern Chairman, President and CEO Tom Fanning said on an Aug. 2 earnings call that "If we go forward, we have a nuclear plant that will serve us for decades to come."

"The nuclear units give a much desired quality to the state's integrated resource plan that is fuel diversity. It is resilience to future carbon potential outcomes," Fanning said. "I think the commission has been very vocal about their desire for a reasonable outcome on nuclear. We already have a strong framework for recovery. We entered into that when we had the settlement agreement and the prudence proceeding. So we have a process that works."

Guggenheim Securities analyst Shahriar Pourreza wrote in an Aug. 2 note that while it is "tough" to peg the likelihood of completion versus abandonment, "[W]e aren't so sure [Southern] wants to make that call" on its own.

"[W]e have to imagine [Southern] is crafting their message with some care to achieve a preferred outcome, although that may not be as black and white as either a 'Go' or a 'No-go' in our view," Pourreza said. "The preferred outcome might just be for regulators to decide for them so they don't get stuck holding the bag at the end of the day."

Jefferies LLC analyst Anthony Crowdell, who authored an Aug. 3 note invoking The Clash song "Should I Stay or Should I Go," predicted that the Georgia Public Service Commission "will decide in [the fourth quarter] to continue with the project."

Pourreza said Southern's decision will have further implications on the company's external financing needs. If completion is chosen, he wrote, Southern would require more debt and equity to fund construction and maintain the capital structure that the PSC authorizes for Georgia Power.

Southern recently gave subsidiary Mississippi Power Co. a $1 billion equity infusion to cover costs at Plant Ratcliffe in Kemper County, Miss., but now the parent needs a $1 billion infusion of its own, Fanning said on the earnings call. That need is "unrelated" to the timings of a Kemper settlement and whether Vogtle proceeds toward completion, he said.

Management reaffirmed its 8-cent-per-year dividend increase guidance, which Crowdell said "is consistent with our forecast and highlights the strong utility earnings in the company's operating companies." Risks to the firm's EPS estimate, however, include sensitivity of industrial sales to cyclical swings in the economy and construction completion risk.

Kalton said he and his colleagues "remain comfortable" with Wells Fargo's "market perform" rating for Southern stock "given the significant near-term risks (regulatory & execution)." The firm nudged down its forward price target to $53 per share from $53.50 per share, due primarily to Wells Fargo's downwardly revised earnings per share outlook.

Exelon, Duke, Dominion, Entergy updates

While many eyes turned to Southern after two South Carolina utilities abandoned the V.C. Summer nuclear plant's expansion, a number of other regulated utilities also held earnings calls this week.

Exelon Corp. President and CEO Chris Crane said Aug. 2 that the risk of natural gas pipeline failures could be the next piece of the company's regulatory efforts to pitch state, federal and grid officials on the value of preserving nuclear generating assets as both a national security and climate hedge. "We have to, as an industry and as a country, come to grips with this," he said.

Duke Energy Corp. Chairman, President and CEO Lynn Good on Aug. 3 defended Duke Energy Progress LLC's proposed 14.9% rate increase, saying, "consistent and deliberate cost management" has already been delivered to customers, and revenue would go toward new solar investments and coal ash basin closures. The subsidiary's rate case is its first since 2013.

Dominion Energy Inc. management said Aug. 2 that they are waiting for final approval from regulators for the Atlantic Coast natural gas pipeline, and it is also nearing completion on the Dominion Cove Point LNG LP export facility under construction at an existing import terminal in Maryland.

Entergy Corp. executives on Aug. 2 suggested formula rate plan mechanisms could limit Entergy Arkansas Inc.'s earnings in 2018 but allowed that returns would more closely align with the utility's operations in subsequent years.