For the first time in over 30 years, the U.S. Nuclear Regulatory Commission (NRC) has approved licenses for the construction of two new nuclear reactors. In a long-awaited vote, the federal regulators decided 4-1 in favor of building the 1,100-megawatt units at power generator Southern Company’s (SO) existing nuclear site in Vogtle, Georgia.
The last nuclear plant to be given the go-ahead by NRC was way back in 1978, a year before the Three Mile Island accident in Pennsylvania. Although new atomic energy units have come online in this country within the last couple of decades – the most recent one in 1996 – they received their initial license prior to 1978, when the Three Mile incident raised fears of a radiation release and brought new reactor orders almost to a standstill.
Interestingly, the sole dissenting voice in the commission came from chairman, Gregory B. Jaczko, who argued that the construction and operating license would not be able to fully address the safety risks exposed by the meltdown at Japan's Fukushima plant last year following a devastating earthquake and tsunami.
Atlanta-based Southern, which got the green light for a new reactor design from NRC in December, has already invested hundreds of millions of dollars in preparing the site. If things go as planned, the company expects the first reactor to be making electricity by 2016 and the second a year later.
With the construction of the two new ‘third-generation’ reactors – said to be safer with a capacity to survive longer during emergencies without outside power – the Vogtle plant, where two older reactors from the 1980s already operate, is set to become the largest nuclear complex in the U.S.
Now, the state regulators in Georgia are tasked with the decision to oversee Southern and its three minority partner’s spending on the estimated $14 billion project. The Obama administration has promised an $8.3 billion in federal loan guarantee for the two reactors as an incentive.
Southern Company’s NRC vote of approval is being hailed as a milestone for the industry with the hope that Vogtle 3 and 4 will usher in a wave of new projects towards championing nuclear energy as a cleaner (low-carbon) alternative to fossil fuels.
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 U.S. It is a holding company for four regulated Southern electric utilities that serve about 4.4 million customers – Georgia Power, Alabama Power, Gulf Power and Mississippi Power.
Southern Company is one of the best-managed electric utility holding companies in the U.S., and it dominates the power business across the southeastern part of the country. With good rate base growth and constructive regulation, we believe the firm will be able to generate steady earnings and dividend growth in the coming years through its long-term power contracts. However, the challenging economic environment and a return to more normal spending levels may hamper Southern’s results in the next few quarters.
As such, we do not anticipate a significant upside in the near future and expect the stock to perform in line with the broader market.
Taking these factors into account, we remain comfortable with Southern’s Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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