8-KOther Events

SOUTHERN CO 8-K Report, Corporate Update (Jun 12, 2017)

Filed June 12, 2017For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

This 8-K filing from Southern Company (SO) addresses significant developments concerning the construction of Plant Vogtle Units 3 and 4, a major nuclear energy project. The primary focus is on the repercussions of Westinghouse Electric Company LLC's Chapter 11 bankruptcy filing. Southern Company, through its subsidiary Georgia Power, has entered into new agreements to manage the fallout, including a settlement with Toshiba Corporation regarding its guarantee of project obligations. Key to investors is the financial impact and ongoing uncertainty surrounding the project's completion. While a settlement with Toshiba provides a clearer picture of its commitment ($3.68 billion Guarantee Obligations), the project's future hinges on satisfying several conditions for a new Services Agreement with the contractor. The company is undertaking further assessments of costs and schedules, and the ultimate outcome remains undetermined, necessitating close monitoring by investors of regulatory approvals, financing, and the contractor's bankruptcy proceedings.

Key Highlights

  • 1Westinghouse Electric Company LLC, the contractor for Plant Vogtle Units 3 and 4, has filed for Chapter 11 bankruptcy protection.
  • 2Southern Company, via Georgia Power, entered into a Guarantee Settlement Agreement with Toshiba Corporation, acknowledging $3.68 billion in Guarantee Obligations, payable through January 2021, with provisions for offsets from Westinghouse asset sales.
  • 3A new Services Agreement is being negotiated with the contractor to transition construction management to Southern Nuclear Operating Company and to provide ongoing design, engineering, and procurement services, contingent on bankruptcy court and other approvals.
  • 4The Services Agreement's effectiveness is subject to several conditions, including bankruptcy court approvals, contractor rejection of the original agreement, and DOE approval.
  • 5Georgia Power and other Vogtle Owners are conducting comprehensive assessments of schedule, cost-to-complete, and cancellation costs due to the contractor's bankruptcy filing.
  • 6The company has approximately $4.3 billion in construction work in progress related to Plant Vogtle as of May 31, 2017, the recovery of which is subject to ongoing discussions.
  • 7The ultimate outcome of these matters, including the full impact of the contractor's bankruptcy, remains uncertain and subject to various risks and future approvals.

Frequently Asked Questions

The main issue is the significant impact of Westinghouse Electric Company LLC, the contractor for the Plant Vogtle Units 3 and 4 nuclear project, filing for Chapter 11 bankruptcy protection. This filing has necessitated new agreements and introduces considerable uncertainty for the project's future.

The settlement with Toshiba acknowledges its commitment to $3.68 billion in Guarantee Obligations for the project. This provides a clearer, albeit substantial, financial commitment from Toshiba, with a payment schedule extending through January 2021. It also includes provisions for Toshiba to pass through certain proceeds from Westinghouse asset sales as offsets.

The Services Agreement is contingent upon several conditions, including approval from Westinghouse and WECTEC's boards, approval from the bankruptcy court and DIP lender for the contractor's bankruptcy proceedings, formal rejection of the original Vogtle 3 and 4 Agreement by the contractor and its approval by the bankruptcy court, and approval from the U.S. Department of Energy. These conditions highlight the complex legal and regulatory hurdles ahead.

As of May 31, 2017, Georgia Power's construction work in progress for Plant Vogtle Units 3 and 4 totaled approximately $4.3 billion. The company is currently conducting assessments to determine the full impact of the contractor's bankruptcy on the project's cost and schedule, and the ability to recover these costs is subject to future decisions and approvals.