Toshiba Pays Vogtle Settlement: What’s Next for Southern Company?
Toshiba to pay ~$3.7 billion to SO
Southern Company (SO) stock saw some positive momentum after it reached a settlement with Toshiba regarding the Vogtle plant last week. The Vogtle nuclear plant’s principal contractor, Westinghouse Electric, announced its bankruptcy in March 2017.
According to SO’s SEC filing on June 9, 2017, Toshiba, Westinghouse’s parent, agreed to pay the Georgia-based utility ~$3.7 billion for the unfinished construction of its nuclear power plant.
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Southern Company (SO) has decided not to ask for any additional compensation from Toshiba, even if the costs of the Vogtle plant increase due to delays. Under this agreement, the amount would be paid based on an agreed schedule of payments continuing through 2021.
The payment by Toshiba doesn’t require Southern Company to complete construction of the Vogtle plant. So, it’s still uncertain whether the project will be completed.
Thorn in Southern Company’s performance
Construction at the Vogtle nuclear plant is critically behind schedule. Frequent delays have increased the plant’s costs well beyond its original estimate.
According to the Wall Street Journal, an independent consultant reported to the Georgia Public Service Commission that continuing Vogtle’s construction could be uneconomical under several circumstances. Instead, building an equivalent natural gas–fired power plant might make more sense if natural gas prices remain low.
Building and operating a nuclear power plant has become extremely expensive for power companies in the US. Recently, Connecticut lawmakers rejected a bill that would have permitted the state to buy power from Dominion Energy’s (D) Millstone nuclear power plant.
Industry experts estimate that Millstone could be one of the nuclear power plants in the Midwest and the Northeast that could shut down before their licenses expire. Weak natural gas prices have recently transformed the economics of US power producers, and utilities (XLU) are increasingly seeking state support to make nuclear power generation economical.
Westinghouse was the principal contractor at SCANA Corporation’s (SCG) V.C. Summer nuclear power plant as well. SCANA and Toshiba have yet to reach a settlement over the plant.