8-KEarnings & ResultsRegulation FD

SOUTHERN CO 8-K Report, Financial Results (Jul 30, 2013)

Filed July 30, 2013For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

This 8-K filing by Southern Company (SO) primarily concerns Mississippi Power's updated cost estimate and financial impact related to the Kemper County Integrated Gasification Combined Cycle (IGCC) project. Management has revised the estimated cost to complete the project to approximately $3.87 billion, net of DOE grants and certain cost cap exceptions. This revision is driven by ongoing construction pressures, including labor costs, material costs, productivity decreases, and startup-related expenses. As a consequence of these cost overruns, Southern Company and Mississippi Power will record an additional pre-tax charge of $450 million ($278 million after-tax) in their second quarter 2013 financial statements. This is in addition to the $540 million ($333 million after-tax) previously recognized. The company emphasizes that they do not intend to seek joint owner contributions or rate recovery for costs exceeding a $2.88 billion cap, except for those covered by specific exceptions. Investors should be aware that further cost increases or schedule delays are possible due to the project's "first-of-a-kind" nature and various operational and market risks.

Key Highlights

  • 1Mississippi Power revised its estimated cost to complete the Kemper IGCC project to approximately $3.87 billion (net of grants and certain exceptions).
  • 2An additional pre-tax charge of $450 million ($278 million after-tax) will be recorded in Q2 2013 due to cost overruns.
  • 3This charge is in addition to the $540 million ($333 million after-tax) previously recognized for the project.
  • 4Mississippi Power will not seek rate recovery or joint owner contributions for costs exceeding a $2.88 billion cap, except for specific exceptions.
  • 5The cost increase is attributed to labor, material, productivity, and startup-related expenses for the "first-of-a-kind" technology.
  • 6The company acknowledges the possibility of further cost increases and schedule delays due to project complexity and external factors.
  • 7A monthly status report for the Kemper IGCC project through June 2013 was submitted to the Mississippi Public Service Commission (PSC).

Frequently Asked Questions

The revised estimated cost to complete the Kemper IGCC project is approximately $3.87 billion, after accounting for $245 million in U.S. Department of Energy grants and certain other cost cap exceptions.

Southern Company and Mississippi Power will recognize an additional pre-tax charge to income of $450 million ($278 million after-tax) in their second quarter 2013 financial statements due to the revised cost estimate. This is on top of previous charges.

Mississippi Power has stated it does not intend to seek joint owner contributions or rate recovery for any costs related to the construction of the Kemper IGCC that exceed the $2.88 billion cost cap, with the exception of amounts subject to specific Cost Cap Exceptions.

The increase is driven by ongoing construction pressures, including higher labor costs, piping and material costs, engineering and support expenses, startup costs, and a decrease in construction labor productivity. The project's 'first-of-a-kind' nature also contributes to potential risks.