Giant U.S. utility The Southern Company (SO 2.10%) has been working to fix a big problem. While it has been making material progress, 2020 will be a very important year. If it can hit all of its targets, then 2021 and 2022 suddenly look a lot brighter. What is it that Southern needs to do? Nothing more than get the only nuclear power plant currently being built in the United States up and running. Here's what you need to know and watch at Southern as 2020 progresses.
Turning a "disaster" around
The word "disaster" is probably an overstatement when discussing Southern's plans to build two nuclear power plants at its Vogtle facility. In an industry that's seen the Chernobyl and Fukushima meltdowns, Southern's problems are relatively minor in the grand scheme of things. However, for investors, they are still big news, including cost overruns, project delays, and the bankruptcy of the company's original contractor (Westinghouse).
The truth is, Southern's dream of completing the Vogtle project very nearly ended not too long ago, which would have been a multibillion-dollar hit. The Westinghouse bankruptcy, for example, pushed SCANA to cancel the nuclear plant it was building, resulting in a financial hit that ultimately led to the utility getting bought out by Dominion Energy. None of this is on the scale of a nuclear meltdown, but canceling Vogtle would have been a financial disaster for Southern and its shareholders.
Southern pulled this project back from the brink by, basically, taking over day-to-day management from Westinghouse. It also agreed to foot most of the bill if there were any more cost overruns. It is basically betting its reputation and, to a material extent, its finances on the Vogtle project. It's why Vogtle is the main topic of discussion on every earnings conference call right now. And since it's a multiyear project that won't be done until late 2022, there are a lot more conference calls to go before the conversation turns to other things.
However, there will be a very big deadline in late 2020 as the company looks to attach the first of the two nuclear builds to the grid in 2021. And investors should be watching very closely.
Hitting the deadline
The really big event will come around November or December of this year if everything goes as planned, when Southern loads nuclear fuel into the reactor of the Vogtle 3 nuclear power plant. That's when the rubber hits the road, as the saying goes. Although the plant won't be put into service for another 6 to 12 months after that, loading the fuel in is really when it becomes a living, breathing nuclear reactor.
There are still a lot of steps to nail down before Southern gets there, mostly designed to test the reliability of the work that has been done. For example, the company has been testing the control room and examining the water pipes to make sure they are all up to spec. The goal is to have construction substantially complete by around mid-2020. That will allow for some final testing before the nuclear fuel gets loaded into the reactor and it basically becomes a fully functioning nuclear power plant.
The thing is, building a nuclear power plant is a complex job with lots of moving parts that all have to come together at the same time if Southern wants to hit its targets. That includes getting enough workers on site, ensuring quality work, and keeping to the timeline across various aspects of the job -- which are the types of things that keep Southern's CEO up at night. One small delay anywhere along the line could push the nuclear load back and delay the entire project.
It would also bring into question the timeline for the second reactor, Vogtle 4, which is also being built right now. This is a very real issue. A malfunctioning pump caused delays at a nuclear plant using the same technology in China. There was nothing wrong with the overall design, just the pump. But because of the stakes involved with nuclear power, the issue had to be thoroughly examined.
Southern had people on the ground in China to watch the construction process, including the pump troubles, so it was able to learn from the event. It is applying that learning to its Vogtle project back here in the United States. This highlights why Vogtle 3 is so important. Watching someone else build a nuclear reactor is good, but doing it yourself is even more informative, so every bit of knowledge that Southern earns through its own work on Vogtle 3 can be applied to Vogtle 4. Thus, if the utility can get the first one right, the chances that the second one will go smoothly increase.
The big dates
Since two of the biggest steps in getting Vogtle 3 up and running are set to take place in 2020, this is the biggest issue investors need to watch at Southern this year. Southern has done a reasonable job providing clear and consistent information to the market on the topic. And the Vogtle project will be heavily discussed during each quarterly conference call. There's no reason you can't stay well informed.
That said, the first big event will be when construction is largely complete around June or July (according to the project plan the company has shared). Then, after more testing, comes the fuel load toward the end of the year, when the facility really becomes a nuclear power plant. There will be more testing before it gets attached to the grid and many little steps all along the way. But these two dates are the big ones for investors to watch in 2020 as Southern looks to become the first U.S. utility in years to successfully build a domestic nuclear power plant.