8-KRegulation FDOther Events

SOUTHERN CO 8-K Report, Regulation FD Disclosure (Oct 2, 2013)

Filed October 2, 2013For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

This 8-K filing from Southern Company (SO), filed on October 2, 2013, primarily concerns updates regarding the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project by its subsidiary, Mississippi Power Company. The key takeaway for investors is a revised construction schedule for the Kemper IGCC project, now expected to be in service later in 2014 than the previously anticipated May 2014 date. This delay is attributed to abnormally wet weather and lower-than-planned construction labor productivity. Furthermore, the filing discusses the implications of this schedule extension on the project's investment tax credits. Mississippi Power will need to recapture $133 million in Phase I investment tax credits and will reclassify them as a liability. While this impacts the financial accounting, the company anticipates no change to customer rates under the existing Seven-Year Rate Plan due to mitigating factors like additional bonus depreciation. Investors should monitor future reports for updated cost estimates and the final in-service date.

Key Highlights

  • 1Mississippi Power Company's Kemper IGCC project has a revised in-service date, now expected to be later in 2014, extending beyond the original May 2014 target.
  • 2The schedule extension is primarily due to adverse weather conditions and lower-than-expected construction labor productivity.
  • 3The company will reclassify $133 million in Phase I investment tax credits as a liability due to the schedule extension.
  • 4Mississippi Power anticipates no change to customer rates under the current Seven-Year Rate Plan, with mitigating factors offsetting the loss of tax credit amortization.
  • 5Specific revisions to the schedule and potential changes to the construction cost estimate (currently capped at $2.88 billion) are expected to be finalized and reported in late October 2013.
  • 6The company acknowledges the risk of further schedule extensions and cost increases due to factors like labor costs, weather, equipment issues, and contractor performance.

Frequently Asked Questions

The primary reasons cited for the delay are abnormally wet weather conditions and lower-than-planned construction labor productivity experienced during the construction period.

Due to the schedule extension, Mississippi Power must recapture the $133 million in Phase I investment tax credits allocated to the Kemper IGCC. These credits will be reclassified as a liability to the Internal Revenue Service on Mississippi Power's balance sheet for the third quarter of 2013.

Mississippi Power anticipates no change to the customer rates proposed under the Seven-Year Rate Plan. This is due to mitigating factors, including additional bonus depreciation, which are expected to offset the impact of losing the amortization of the Phase I tax credits.

The construction cost cap for the Kemper IGCC project, as set by the Mississippi Public Service Commission, is $2.88 billion, which includes contingency.