Time to break out of the utility death spiral by breaking away from cost overruns at Kemper “clean” Coal and the Plant Vogtle nuclear boondoggle and getting on with real renewable solar and wind power.
UBS wrote 5 May 2014, Southern Company: Kemper Tantrums; Reducing to Sell,
Reducing to Sell on continued delays for the Kemper IGCC project
With further delays and increased costs for the Kemper IGCC project resulting in yet another $380M of writedowns (further slippage costing $25M/month) and now the likely loss of $120M-$150M of bonus depreciation as well, we view the current premium P/E multiple as untenable. While the Vogtle nuclear project appears to be on track, the presence of two major risky projects, both testing new technologies, with one having major ongoing problems, coupled with a slowing investment and earnings growth rate profile through 2016 lead us to downgrade to Sell.
It’s not just two risky projects. What will happen to SO’s promises of cheap natural gas power when Elba Island starts exporting LNG? If LNG exports there and everywhere else that is being proposed drive methane prices up like T. Boone Pickens and everybody else expects, won’t that make SO’s methane plants as big an albatross around their neck as their “clean” coal project and their Plant Vogtle boondoggle?
How about SO get out in front with its largest-in-the-U.S. private R&D operation and lead the country in a smart grid to connect renewable solar power inland and wind power offshore? Starting with utility-owned rooftop solar, as Tom Fanning proposed last May and Steven Chu now is pushing: Or SO can join the “death spiral”, as Wall Street calls it, of utilities that won’t do renewable energy.
As an SO shareholder myself, I prefer Southern Company lead and make its stock worth more, not less.