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).