8-KEarnings & ResultsRegulation FDOther Events

SOUTHERN CO 8-K Report, Financial Results (Oct 29, 2013)

Filed October 29, 2013For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

This 8-K filing from Southern Co. (SO) addresses significant developments concerning Mississippi Power Company's (a subsidiary) Kemper County Integrated Gasification Combined Cycle (IGCC) project. The primary focus is on the project's extended construction schedule and updated cost estimates. Mississippi Power has revised the in-service date to the fourth quarter of 2014, citing issues such as lower-than-planned piping installation and adverse weather conditions. Furthermore, the revised cost estimate for the Kemper IGCC has increased to approximately $4.02 billion, net of DOE grants. Notably, Mississippi Power will not seek joint owner contributions or rate recovery for costs exceeding the $2.88 billion cap, except for specific "Cost Cap Exceptions." As a result of this projected loss, Southern Company and Mississippi Power will recognize an additional pre-tax charge of $150 million ($93 million after tax) in their third quarter 2013 financial statements, adding to the $990 million ($611 million after tax) previously recorded.

Key Highlights

  • 1Kemper IGCC project in-service date extended to Q4 2014.
  • 2Revised total cost estimate for Kemper IGCC is approximately $4.02 billion (net of DOE grants).
  • 3Mississippi Power will not seek rate recovery for costs exceeding the $2.88 billion cap, except for specific exceptions.
  • 4An additional pre-tax charge of $150 million ($93 million after tax) will be recognized in Q3 2013 for estimated probable losses.
  • 5Previous charges totaling $990 million ($611 million after tax) have already been recognized.
  • 6Project delays are attributed to piping installation issues and adverse weather.
  • 7There is a risk of further schedule extensions and cost increases due to various factors, including 'first-of-a-kind' technology challenges and potential material non-recoverable costs.

Frequently Asked Questions

The primary reasons cited for the delay are lower-than-planned installation levels for piping and abnormally wet weather conditions.

The revised cost estimate for the Kemper IGCC project is approximately $4.02 billion, which is net of $245 million in grants from the U.S. Department of Energy and excludes certain other costs.

Mississippi Power has stated that it does not intend to seek joint owner contributions or rate recovery for any costs exceeding the $2.88 billion cost cap, except for amounts subject to specific "Cost Cap Exceptions" and net of DOE Grants. This means that certain cost overruns beyond the cap may not be recovered through customer rates.

Southern Company and Mississippi Power will record an additional pre-tax charge to income of $150 million ($93 million after tax) in their third quarter 2013 financial statements to account for the estimated probable loss. This is in addition to previously recognized charges of $990 million ($611 million after tax).