The Southern Company (NYSE:SO) is an electric utility conglomerate that offers power generation assets of many and varied types including nuclear, wind, solar, natural gas, coal, hydro and battery storage facilities. It incorporated in 1945 breaking away from Commonwealth Southern to form in 1949 The Southern Company.

It is the largest US electricity producer and wholesale provider in the Southwest US, with 9 million customers over 7 states.

The main energy divisions and states are mixed to a degree but are divided by the power generation type and services offered.

1 - Electric

The regulated electric operations are named after the states they operate in: Alabama, Georgia and Mississippi Power have 44,000 MW of electric and gas capacity. It includes 27,000 transmission lines, 3700 substations and 300,000 acres of right of way access.

2 - Gas

Regulated natural gas operations cover 4.68 million retail customers in the 4 states of Illinois, Virginia, Tennessee, Georgia under the following 5 company names:

- Southern Co Gas

- Atlanta Gas Light

- Chattanooga Gas

- Nicor Gas in Illinois is its most recent purchase, bought in 2016.

- Virginia Nat Gas.

3 - Other

-Southern Wholesale Energy "SWE" markets the retail operating companies' surplus generating capacity to the wholesale market.

It operates 77,900 miles of gas pipelines along with 14 storage facilities.

The energy mix is:

52% gas, 17% coal, 17% nuclear and 14% renewable & other while operating 103 power plants with 99% reliability with 77 being fossil fuel and hydro.

Unregulated Companies

- Southern Nuclear - Operates six nuclear plant units.

1- Plant Farley is owned by Alabama Southern

The next 5 plants are co-owned by GA Power, Oglethorpe Power and the Electric Authority of GA and Dalton Utilities.

1- Plant Hatch in Baxley, GA

4- Plant Vogtle in Waynesboro, GA.

- Southern Power - Operates 55 facilities including 15 wind, 30 solar operations, 4 combined cycle plants, 2 energy storage, 4 peaking plants and 2 fuel cell plants in the 15 states of Alabama, California, Delaware, Georgia, Kansas, Maine, Nevada, New Mexico, North Carolina, Oklahoma, South Dakota, Texas, Washington, West Virginia and Wyoming.

- Power Secure which offers energy solutions and micro grid efficiency upgrades.

- Southern Telecom and Southern Linc offer wireless communications and fiber optic services.

2 expensive energy projects completed - 1 finally and another differently than anticipated

Vogtle Nuclear Power Plant

Southern Company 4 Unit Nuclear power towers.

Alvin W. Vogtle Electric Generating Plant in Waynesboro, GA provides the largest generation of clean low carbon energy in the US with Unit 3 opening July 31, 2023, becoming the first new nuclear reactor in the United States in 7 years. Unit 4 just entered commercial operation on April 29, 2024. These units will provide power to 1 million homes for 60-80 years as it also had its licenses renewed by the Nuclear Regulatory Commission in 2009 for an additional 20 years to January 16, 2047, for Vogtle Unit 1, and September 2, 2049, for Unit 2; as they were powered up separately. It is the 2nd largest power station in the US and the only one with 4 units.

Units 1&2 are Westinghouse 4 loop pressurized water reactors using General Electric steam and turbine generators, completed in 1987 & 1989. They have twin natural draft cooling towers, both 548 ft. tall for the main condensers with 4 smaller mechanical draft towers to provide nuclear service cooling water for safety and auxiliary non-safety components along with removing decay heat from the reactor when it is offline. Bechtel designed the containment steel lined prestressed post tensioned concrete cylinders with a hemispherical dome that was adopted, with the final cost jumping from $660 million to $8.87B.

Units 3&4 permits were applied for in 2006 and were approved in 2009 by the NRC when preliminary construction began as well. The Towers selected had an increased height to 600 ft.

Westinghouse AP 1000 reactors were chosen in Dec 2011 after 19 revisions to plans.

Certified construction costs were $14 Billion in 2017 and then the cost increases began to rise with the bankruptcy of Westinghouse, which was owned by Toshiba. To make a long story short, costs rose to $25B in 2018, $28.5 B in 2021 and upped to $34B in 2023 with Unit 4 yet to be completed. Bechtel was the finalized contractor for Unit 4 and did finish it in 2024, after a delay of ~2 years.

Management actually had numerous setbacks and government regulation issues that pushed out costs and final opening dates, but overcame it with exceptional resilience and determination to finalize the project. Government loan guarantees and a settlement from Toshiba helped reduce refinancing costs for Georgia Power along the way. It is a major, expensive achievement and should be regarded as a superior quality carbon-free energy source for years to come.

It is important to note Southern Company has set a goal of Zero Carbon in all operations by 2050. Only new environmental legislation and other fossil fuel regulations can put that plan in jeopardy. It is well on its way to success with the newly operational nuclear power plant units and retiring 8 coal plants by 2028.

Kemper Mississippi Plant Project - finished 2017 but not as planned

This was to be a renewable carbon capture project utilizing coal to provide clean energy. It had the potential to be the single most important experiment in developing electricity in the world. It was designed and approved during the Obama administration and became an expensive failure with huge cost overruns of ~$6B. It missed all its targets and goals for "clean coal" syngas energy production and has been functional since 2017 as a plant burning natural gas only.

Through it all and the $ billions spent, the company maintains an A- S&P credit rating.

It is important to note there are other companies that own and operate nuclear power plants and are shown in the chart below.

Leading operators of nuclear power plants in the United States as of July 2023, by capacity (in megawatts)

Constellation Energy (CEG) is #1 and operates Mid-Atlantic, Midwest, New York and Texas/ERCOT, with Duke Energy (DUK) being #2, operating in the Carolinas, Florida and the Midwest US.

Southern Company sits comfortably in the middle of the top 10 providers.

Dividend

Southern Company has 24 years of paying a rising dividend. This raise was 2.9% from 70 to 72c and will be paying $2.88 per year. It has a 3.16% 5-year DGR, making this recent one a bit below average. The normal payout is also close to average at 76.16%.

At the current price of $77.57 it has a yield of 3.7%.

Earnings

FAST Graph

The graph below is for 7 years, showing ~4.5 years of known statistics and 2.5 years of estimates with the dotted lines.

The black line is for price, white line is dividend and dark green area represents earnings.

FAST Facts on the right side of the graph also lists most of the statistics mentioned below.

Normal (blue line) 7-year P/E is 19.72x, and it is selling at 20.34x, running a bit over value lately.

2024 estimated earnings rise of 10% is much better than the 1% seen in 2023. Estimates for 2025 and 2026 are good, with each predicted to be 7%.

Earnings and cash flows should continue to rise with numerous positive tailwinds for it, including:

- newly operating, long-awaited opening of Unit #3 and #4 nuclear energy plants in GA.

- low utility rates in the southern US and continued good political ties to maintain those.

- growing energy demands and contracts signed with numerous customers over 10 years.

- Rate relief should happen with improved macroeconomic improvements.

Only long-term environmental issues should be the negatives for it and all energy providers.

Chowder#

A measure of investing success is the Chowder# which is obtained by adding the current dividend yield + the 5-year dividend growth rate. At the current price the yield is 3.7%, and it has a 5-year DGR of 3.16% giving it a C# of 6.86, almost 7.

The C# desired for a utility is 8, which means it does not currently pass that metric.

Rose Take & Recommendation

Great quality company, but amazing to think it might now be overvalued if using the normal P/E and C#. A 4.84% minimal yield is needed to pass the C#. This is a company I have enjoyed owning for many years and in the past, I looked for a 5% yield to add to the position, meaning ~$58 currently. The Rose Recommendation is a hold and watch for that lower valuation and higher yield to buy.

Summary/Conclusion

Utilities in general are not in favor, and to find Southern Company up in value was a bit of a surprise. It most likely is for the good reason the nuclear units #3 and this year #4 are in operation and will push more positive earnings for this year in the future. The Rose's Income Garden portfolio of 85 stocks in all sectors is up this year by 7.21% and has a yield of 6.2%. It holds 9 investments in the utility sector, with a CEF holding the top value spot, followed by Duke and then SO. I consider owning utility stocks as defense for the portfolio and recommend getting some for any diversified portfolio.