Summary
Southern Company (SO) filed an 8-K on February 3, 2015, primarily detailing updated cost estimates and related charges for its subsidiary Mississippi Power's Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project. The company announced an additional $45 million cost adjustment subject to the Mississippi Public Service Commission's (PSC) $2.88 billion cost cap for the Kemper IGCC, leading to a revised total estimated cost subject to the cap of approximately $4.93 billion (net of grants and excluding certain exceptions). Consequently, Southern Company and Mississippi Power recorded an additional pre-tax charge of $70 million ($43 million after-tax) in the fourth quarter of 2014, adding to previously recognized charges of $1.98 billion. This indicates continued cost overruns and significant financial strain on the project, which uses a first-of-its-kind technology. Investors should be aware that Mississippi Power does not intend to seek rate recovery or joint owner contributions for costs exceeding the $2.88 billion cost cap (net of grants and excluding specific exceptions). The company also faces ongoing risks and uncertainties related to the project's completion, including potential future cost increases, delays, and operational performance issues. The ultimate outcome of the Kemper IGCC project remains uncertain, and any further changes in estimated costs could materially impact Southern Company's financial statements.
Key Highlights
- 1Mississippi Power revised its Kemper IGCC cost estimate, adding approximately $45 million subject to the $2.88 billion cost cap, bringing the total estimated cost under the cap to ~$4.93 billion (net of DOE grants, excluding exceptions).
- 2Southern Company and Mississippi Power recorded an additional pre-tax charge of $70 million ($43 million after-tax) for the fourth quarter of 2014 due to the revised Kemper IGCC cost estimate.
- 3These new charges are in addition to substantial prior charges totaling $1.98 billion pre-tax ($1.22 billion after-tax) recognized in previous periods.
- 4Mississippi Power will not seek rate recovery or joint owner contributions for Kemper IGCC costs exceeding the $2.88 billion cost cap (net of grants and excluding cost cap exceptions).
- 5The company acknowledges numerous potential risks that could lead to further cost increases and/or extensions of the in-service date for the Kemper IGCC.
- 6The filing includes a cautionary note highlighting that actual results could differ materially from forward-looking statements due to various risks and uncertainties.
- 7A Monthly Status Report for the Kemper IGCC through December 2014 was submitted to the Mississippi PSC and furnished as an exhibit.