Summary
Southern Company (SO) and its subsidiary Mississippi Power filed an 8-K on October 28, 2014, primarily to disclose significant cost overruns and schedule delays concerning the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project. Mississippi Power revised its estimated costs subject to the Mississippi Public Service Commission's (PSC) $2.88 billion cost cap by approximately $330 million, bringing the total estimated cost subject to the cap to roughly $4.86 billion. This substantial increase, driven by construction, start-up, operational readiness, and schedule extensions, led Southern Company and Mississippi Power to record pre-tax charges of approximately $418 million in the third quarter of 2014, in addition to previously recognized charges. The project's in-service date for the remaining components (gasifier and gas clean-up facilities) has also been pushed back to the first half of 2016, from an earlier expectation of mid-2015. Mississippi Power stated it does not intend to seek rate recovery for costs exceeding the $2.88 billion cost cap, excluding certain defined exceptions. The filing also notes that further cost increases and delays are possible due to various factors inherent in this first-of-its-kind technology, and any future changes will be reflected in financial statements.
Key Highlights
- 1Mississippi Power significantly revised upwards its estimated costs for the Kemper IGCC project, adding approximately $330 million in costs subject to the $2.88 billion PSC cost cap, bringing the total estimated cost to $4.86 billion.
- 2Southern Company and Mississippi Power recorded $418 million in pre-tax charges in Q3 2014 due to these cost overruns, adding to prior charges of $1.56 billion.
- 3The in-service date for the remaining Kemper IGCC facilities (gasifier and gas clean-up) has been delayed to the first half of 2016, from an earlier expected date in mid-2015.
- 4Mississippi Power stated it will not seek rate recovery for costs exceeding the $2.88 billion cost cap, excluding specified exceptions.
- 5The company acknowledged that further cost increases and schedule delays are possible due to the complex nature of the IGCC technology and various risk factors.
- 6The filing incorporates by reference Mississippi Power's Monthly Status Report through September 2014 submitted to the Mississippi PSC, providing detailed updates on the project.