This article originally appeared on Jan. 31, 2014, on RealMoney.com. To read more content like this plus see inside Jim Cramer's multimillion-dollar portfolio for FREE... Click Here.
The Southern Company (SO - Get Report) has some good news: Both revenues and earnings exceeded expectations. While a solid quarter is good news, Southern announced even better news.
Its forward costs are going to drop. Management successfully negotiated a loan guarantee with the Department of Energy (DOE) for their new nuclear power plants. It appears all but certain Southern secured a federal loan guarantee for approximately $8.33 billion. The guarantee will lower Southern's construction costs for its new Alvin W. Vogtle Nuclear Power Plant Units 3 and 4.
Here is how it works: Interest used for utility construction is often capitalized. The higher the interest rate, the higher the capitalized cost. If a utility can lower its interest expenses, it can lower its construction costs. The lowest interest rates available are usually from the federal government. Therefore, a federal loan guarantee lowers construction costs.
The winners are shareholders and consumers. Consumers will have the reliability of nuclear power at the lowest possible cost. They will also have cleaner air and cleaner water.Nuclear power is a carbon-free source of energy. It emits no greenhouse gases. Plant Vogtle will displace dirty power watt for watt. The new units will displace more than 2,200 continuous megawatts of hydrocarbons for five decades. That is the equivalent of displacing approximately 30 old, inefficient and dirty power plants. Southern's federal loan guarantee has another impact. It reinforces the commitment to finish Plant Vogtle's construction. The guarantee makes it difficult for Southern or the State of Georgia to walk away from construction. Those commitments are important because finishing nuclear construction is not easy. Anyone who followed the Solyndra debacle knows that defaulting on a federal loan guarantee has serious consequences. Not only does a default wipe out equity holders, shareholders and executives become subject to federal investigations and potential criminal charges.
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