NEW YORK (AP) — A Citi analyst on Monday cut his rating for Southern Co. to "neutral" from "buy," citing rising construction costs related to a nuclear power plant project.
Last week, the Atlanta-based power company told regulators it needed to boost its construction budget for Plant Vogtle in eastern Georgia by $737 million to $6.85 billion. The company also said that as a result of construction delays, two of the plant's units would come online later than originally expected.
Analyst Brian Chin said that while the delays weren't surprising, the cost increase was more than expected and has now pushed the project's costs to a point that they significantly increase the company's risks, prompting him to lower his rating. He also cut his price target by $2 to $46.
Soaring costs aren't the only reason power companies are starting to regret their decisions to build nuclear power plants. Over the past year, the price of natural gas has plummeted, making it tougher for nuclear power plants to compete.
In addition, a Georgia lawmaker sought to penalize Southern Co. for going over budget, announcing a proposal to cut into the company's profits by trimming some of the money its subsidiary Georgia Power makes.
Chin said that while the vast majority of the project's engineering work is complete, the risks surrounding it remain high and that it increasingly has less of a cushion to absorb more cost increases.
Southern Co. shares fell 33 cents to $44.50 in premarket trading.